Safety differences between the various types of outlet (two-/three-prong, grounded/ungrounded, with/without GFCI)

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I am an ordinary person with absolutely no knowledge regarding electricity and how it works (things like circuits and such) and I never really cared before until now when I sense potential safety issues in the place I just moved in. I really hope you can explain things in a way that's easy for me to understand. I did some research about "ground" and "neutral" concepts and now I have a bunch of questions about safety. I'm in California, US. My apologies for the super-long post ahead.

Basically I recently moved in to a relative's house. This relative had done some DIY electrical improvements or whatever and I'm not sure if I can trust his "improvements" so I'm asking questions here. From what I know, this house's electrical situation is as follows:

There's no wire/system for ground

All receptacles (outlets) are three-pronged (each has two three-hole smiling face to plug stuff in) (pretty sure this is the standard outlet used everywhere)

Some of the outlets when plugged in, my surge protector says "Protected" but not "Grounded" (meaning light is on for Protected but light is off for Grounded) while the rest all have both lights on

The relative told me that he knows it's better to have a ground system but upgrading this house's system to have that would not be possible due to the wiring in the walls or something like that so he connected the ground and neutral together in the outlets because he saw that these two are connected together at the main panel (I'm not even sure what "connected together" means – again I have no knowledge regarding circuits/electricity). I looked things up and this is supposed to be a dangerous bootleg ground

The reason we have 3 prong receptacles for all outlets instead of 2 prong is because our devices use 3 prong plugs

I looked things up even further and found a bunch of terms like GFCI, etc and then I got confused so my question is:

How and in what situations are the following outlet setups safe or dangerous?
(For each of the 3-prong setup, does the plug of the device (3 or 2 prong) matter? if so how?)

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I'm willing to learn a physics lesson to be able to solve this myself but if it's too hard I'd like to just have the answers with explanations. I'm trying to not get electrocuted

Best Answer

1 is against code 2 is allowed provided the correct stickers are applied ("GFCI protected" and "no equipment ground") 3&4 allowed and safe provided it is not a bootleg ground.

Ground and neutral is only allowed to be connected at the main panel. Disconnect all those bootleg grounds from the neutrals in all other places.

You can put the GFCI protection at the panel by using GFCI breakers. The other option is GFCI receptacles and if you do things right you can protect outlets downstream.