The touch switch is based on a Schmitt trigger withhold contact. which is built from IC1a, IC1b, and R3. The output of IC1b is fed back to IC1a via R3. resulting in both gates maintaining their stable status. As long as the circuit is quiescent, that is, the anode of D1 is low and the cathode of D2 is high, the gates maintain their status.
Consider that output A is low. When the touch contact is shorted with a finger, the potential across R8 rises. This rise is translated into a short pulse by R1-C1. This pulse renders the input of IC1a high via D1. The output of IC1b and Output A will then also go high and, as explained before, this status is maintained.
At the same time, the potential across C2 will rise gradually. When this capacitor is fully (or nearly so) charged, the circuit is ready to change state at the next pulse across R1. This pulse will make the output of IC1a low, whereupon the output of IC1b becomes low and the potential across C2 drops. Output A is then low again and the circuit is back to where it started.