How do birds and squirrels not get electrocuted when sitting or walking on electric wires?

Because the wires themselves are inside plastic tubes, which is an insulator.
Since they're insulators, nothing gets shocked if you touch them.
It's the same with everyday wires in your home.

Its because the electric current would meet more resistance to move through the animal than the wire. Even if it does run though its a small amount up one leg and down the other. The problem comes when an animal touches two wires. If this occurs then it will get electrocuted. Most birds are too small to sit on two wires at once.

Sometimes a squirrel will make its way into the transformer connections and it gets fried that way too.

If they're on one wire only and they don't touch the ground, they won't get electrocuted. But if they touch another wire or touch the ground, they will.

This is generally true, but still on high voltage wires, many birds are electrocuted. Most wires are not high enough in voltage to harm an ungrounded animal.