Yes, every initial state of the first structure must have an initial state of the second one that simulates it. The first structure is here K1xK2, and the second structure is K2. So, we have to check whether for the initial states of K1xK2, i.e., the state P0Q0, there is an initial state of K2 in the relation, which is there, since we have (P0Q0,Q0) in the relation.