You can sense whether current is flowing through a circuit using a very small-valued (fraction of an ohm) resistor which, in such a role, is called "current-sensing resistor". When current flows, a small voltage develops across the resistor. Not enough to produce any appreciable voltage drop in series with the device, and not enough I^2R to generate any serious heat. This small voltage can be amplified (e.g. by an op-amp) and then something can be done with that signal, like feeding it to an LED-driving comparator circuit.
The type and rating of the fuse you must use depends on your local regulations and laws, so it is difficult to help without knowing.
However, the regulations, no matter in which country, depend on physics - more precisely, they ask if the fuse will prevent the wires, switches and outlets from burning in case something fails and causes an overcurrent.
Despite your nice diagram, we can't tell what types (diameters/cross section) of wire are used in your installation, and where the wires are put. For example, different ratings apply depending on whether your wires are laid out in a stone wall or in a wooden construction, or in a wooden construction containing some thermal insulation making it harder for your wires to get rid of heat.
A typical installation in Europe, for example uses wires with a cross section of 1.5 mm2 and fuses with 16 A. If the cross section of the wires is smaller, the fuses have a lower rating, too. If the wires are put inside of thermal insulation material (e.g. in an outside wall or along the roof), you may have to use 13 A or even 10 A for the same 1.5 mm2 wire.
If you are not absolutely certain about your local regulations, please ask a professional electrician. If not done right, you put your house in danger of burning down.
Also, if you have sparks in your fuse holders, I think it's time to replace the entire fuse-and-holder combination. Sparks / arcing may cause very much heat, starting a fire in your fuse compartment!
Best Answer
I'm using this very often. With little modification, you can adapt to other DC votages or polarities. With good fuse only green led lights. When fuse is blown only red LED light up.
Also you can use a dual colour LED with common cathode instead of two single.