I dont see how charge is conserved inside the dotted circle.
Charge conservation is just a matter of bookkeeping (as a matter of fact all conservation principles are). The dollar you spend has to be discounted from your account balance. That sort of thing.
∇·
J = - ∂ρ/∂t means that the charges you see going away for good have to be discounted from the charges you hoard inside your closed surface (represented by the dashed line).
Or a little more rigorously, the total amount of charge you lose per unit area, per unit time, to the exterior of a close volume (∇·
J) is equal to the rate of change over time of a decrease (hence the minus sign) on the amount of charge per unit volume (- ∂ρ/∂t).
Curent is charge divided by time anyway.
Precisely. Current is the rate of charges crossing an area per unit time.
So choose a closed region of space. Count the amount of charge you have in that volume. Say 10 coulombs. If you measure a current of 1 A, i.e. 1 coulomb per second, going out of that volume (and you see no other current), in one second you'll have 9 coulombs, because 1 coulomb will be gone.
If you have this current, plus another with a 2 amp intensity going in the volume, you will end up with 11 coulombs after one second.
You can have a situation in which the amount coulombs stored in the volume must be kept constant. In that case all that comes in per unit time has to go out. In other words, all currents must add up to zero. And that's KCL.
But yeah i can see what the point is, an example of KVL not holding. We KNOW that KVL is not a law of physics.
Kirchhoff studied carefully the behavior of currents and voltages in circuits and published the results of his findings in the "Annals of Physics". Then he derived his theorems, as he called them, from those empirical data. His discovery was a major breakthrough.
So KVL and KCL ARE laws of physics. But a law of physics has not to work under whatever condition. As important as it is to understand KVL and KCL it is to know when they hold and when they fail.
It holds in most cases but not all,
I would say that KVL and KCL do NOT hold most of the times. Where can you find a place on earth where you don't have varying electromagnetic fields? The thing is that we PRETEND that KVL and KCL hold by approximation. We stash fields inside capacitors and inductors, we create ground planes, employ shielded conductors, we decouple lines, inductors, capacitances, all to avoid having to deal with fields. And when we have to deal with them, we employ rules of thumb and equivalent approximate models.
And what we cannot tame and make to conform to KVL/KCL we call "parasitics".
This creates the illusion that KVL and KCL hold "in most cases". But it's only an illusion. Not that we will abandon this illusion all of a sudden. We need to know what it means, and not to try to linger to it if it clearly shows that we will be limited in our ability to interpret the phenomena around us.