A float will be attached to a plastic arm that extends over the edge into the aquarium. The mercury switch will be on the outside end of the arm. As the water level drops, the arm will tilt past a predefined point where the mercury will shift away from the contact cutting the power.
It's really pretty simple. You already have the basic idea. With household AC the current does switch directions. However, only one wire's voltage fluctuates. the neutral wire always has the same voltage relative to ground(meaning the earth, your house is connected to that, you're connected to your house etc.) that way, if you touch the neutral wire, you don't get zapped. the hot wire switches between being more positive than ground and more negative than ground 60 times per second. the "ground" wire is connected to a stake in the ground. it's just a backup for the neutral wire.
Hope that clarified things for you. if you have any more questions just ask.
That helps a lot. I knew that ground is more of an ambient charge rather than zero charge and (I thought) I knew that the current alternated directions in an AC circuit; I just didn't put two and two together quite right. I just wasn't thinking that the charge on the live wire might drop below the ground. It makes perfect sense now. Thanks.