The picture shows the entropy (arbitrary units) of a hot and a cold body. A hot body has high entropy, a cold one low.
The cool block is warming up at the cost of the hot block. Entropy increases, that is S(2) > S(1). For the inverse process, where the hot block gets hotter at the cost of the cooler one, overall entropy would decrease.
If exchange of heat between the blocks and their surroundings can be neglected, this is an isolated system, since neither matter nor heat can cross the system walls.