A GFCI (Ground Fault Circuit Interrupter) measures the current on the hot wire and the neutral wire. If they do not match within about 0.005 amps, it turns the circuit off. The assumption is that the current is going a place it should not. They operate just fine without a ground.

It depends what you mean by "good enough." GFCI will provide occupant protection. It won't allow things like surge protectors to necessarily do all they can do for you. Frankly for several years, new construction requires AFCI's in all bedroom outlets (including lighting). The latest codes require them in other living spaces. More concerning than the lack of grounded receptacles or GFCI/AFCI is just what is the condition of the existing wiring and what the loading on the various circuits are. If this is a concern, I would implore you to get an actual electrician to give you a read. Every home inspector I've ever dealt with is a complete idiot when it comes to any more than sticking his circuit tester in the receptacle and seeing if the bulbs light up.

> Residential premises where the electrical system is in good condition > and complies with the code in effect at the time it was constructed > are not required by the NEC to make any changes simply because > the NEC is revised. Nobody said NEC changes required wiring changes. Nothing posted justified that conclusion. Had all two prong receptacles been left unchanged, then wiring was perfectly safe. Problem is that someone threatened human life by installing three prong receptacles on a two wire circuit. And connected its safety ground prong to the neutral wire. That is two serious safety violations of the NEC. If three prong receptacles are used, then interior cables must be upgraded to three wire OR that GFCI recommendation (with labels) is required. No way around those rules that completely apply once a three prong receptacle replaces a two prong.

It sounds like the receptacle in the second photo is connected to the load side of the GFI (Ground Fault Interrupter) in the first photo, so that it has the same shock protection that the GFI itself has. A GFI is designed to open (interrupt) the circuit if it detects a ground fault (faulty device or cord "leaking" electricity that could electrocute a person). It can do that even if the GFI doesn't have a proper ground. If connecting the Smart Plug causes the GFI to trip, either the Smart Plug has a ground fault, or one of the Christmas light strings connected to the smart plug does. That means you have a shock a hazard. Someone could get hurt or killed. Unplug all the Christmas lights from the Smart Plug, and plug the Smart Plug in all by itself. If it trips the GFI that way, replace the Smart Plug. If the GFI doesn't trip with just the Smart Plug plugged in, then the problem is in one or more of the Christmas light strings. Carefully plug the light strings themselves into the GFI, one at a time. Discard any strings or other decorations that cause the GFI to trip. All that said, a lot here looks and sounds fishy to me. Maybe others have, so I welcome their notes on this, but I've never seen a furnace that was cord-and-plug connected. Every gas and oil furnace I've ever seen has been designed to be permanently wired. It would be a code violation (because of not following the installation instructions) to install such a furnace with a cord and plug. The only water heaters that can be safely and properly cord-and-plug connected are the ones that come with cords from the factory. These are always very small 120 volt point of use water heaters, a foot or two tall, with typically less than 5 gallon capacity. Also, that light switch is nothing like what I'd call a workmanlike installation. To me, that just shouts "hack work." Given such obvious poor workmanship, and your home inspector's report of ungrounded receptacles, I really think that for your family's safety you should hire a licensed professional electrician to look over your electrical system's safety.