The answer to the question of "How does the system recognize" is in the programming of the fire alarm system. That's at least for the "Fire Alarm", "Supervisory Alarm", and "Monitor Activations". Troubles are hard-wired into the system; programming won't change anything about displaying a trouble.
Fire Alarm - Supervisory Alarm - Monitor Activation
A fire alarm system doesn't really decide anything; a fire alarm system is told what to do through the program that is implanted into the system.
A fire alarm panel's programming for fire, supervisory, and monitor is divided into two different areas. The first area is the zone or device inputs/outputs and the second area is the control mapping, or rules, of what is done with signals from the zone or device inputs/outputs.
When the Fire Detection and Alarm System (FDAS) is first set up, and also when changes are made to the system, some systems, like EST, have the fire alarms, supervisory alarms, and monitor activations programmed into the zone inputs/outputs and the addressable devices.
Other Fire Detection and Alarm Systems like Silent Knight have all this information programmed into the Fire Alarm Control Panel (FACP) itself.
The fire alarms, supervisory alarms, and monitor activations from the inputs/outputs are next received by the control mapping or control rules in the FACP's programming.
When a Fire Alarm is received by the control part of the FACP's programming, the control panel turns on a red light. Through programming, the internal control mapping or rules turns on the devices to get everyone's attention in the building; in essence telling everyone to get out. The mapping or rules might also call the monitoring company, release the fire doors, shut down air handlers, close smoke dampers, etc. When it comes to actions, fire alarms have the highest priority.
When a Supervisory Alarm is received by the control part of the FACP's programming, the control panel turns on an amber light and local buzzer. A supervisory alarm is still an alarm, just not as noisy as a fire alarm; it won't tell the people in the building to get out. The supervisory alarm mapping or rules might also initiate other actions. When it comes to actions, supervisory alarms have the second highest priority.
Most Fire Alarm Systems (FAS) don't even have the Monitor Activations. Those fire alarm systems that do have monitor activations can turn on an amber light and can turn on a local buzzer. The monitor activations, through programming, can also turn on or off many devices. When it comes to actions, monitor activations have the lowest priority.
Troubles are different. The panel doesn't "decide" whether or not to show a trouble, if there's a trouble, the panel will show it by turning on an amber trouble light and the local buzzer.
A trouble is caused by anything that isn't working right with the fire alarm system itself. Troubles could be coming from the panel, the Signaling Line Circuit (SLC), any addressable devices and modules, and any conventional circuits that connect to the panel or addressable modules. Even when the utility power quits, a trouble will show up on the panel.
All fire alarm panels will show troubles when something isn't working right. Troubles are hard-wired into the fire alarm panel. When it comes to actions, troubles are a lower priority than supervisory alarms, but higher priority than monitor activations.