I am not sure that I follow all parts of the question. In particular, it is unclear to me what ``a line in $\mathbb{RP}^{1}$'' is, but this might be something that is clear to others. However, I can say that I do not like the idea of viewing both $S^{1}$ and $\mathbb{RP}^{1}$ in the same copy $\mathbb{R}^{2}$ as (I think) that it could lead to confusion since $S^{1}$ is a double cover of $\mathbb{RP}^{1}$ with the quotient map. This may or may not be where your confusion comes in.
Anyway, here is how I see the construction (I can't promise that I preserved the orientations of each, but you can fiddle with that if needed). Start with $S^{1} \subset \mathbb{R}^{2}_{(x, y)}$ and view the projective line $\mathbb{RP}^1$ as coming form a quotient of $\mathbb{R}^{2}_{(u, v)}$, where I use the subscripts $(x, y)$ and $(u, v)$ to denote coordinates. (Note: This is admittedly a superficial labeling, but it provides a clearer picture (at least for me)).
I will walk through the entire of the construction both geometrically and in coordinates, and I apologize if the response is too wordy. The intuition should be be clear however: cut a $S^{1}$ and compress it appropriately so that the ends will be close to the same point in $\mathbb{RP}^1$. With the hindsight of having a working construction, there are easier ways to see what is happening.
Now, define a map $\phi : S^{1}\backslash N \to \mathbb{R}$ via stereographic projection from the North Pole. For a point $P(x, y) \in S^{1}\backslash N$ we thus have $\phi(P) = \frac{-x}{y -1}$. This identifies $S^{1}\backslash N$ with $\mathbb{R}_{t}$, and now we simply need to map this copy of the real line to cover one hemisphere of $S^{1} \subset \mathbb{R}^{2}$ and then send the North Pole to the appropriate equivalence class.
Define $\gamma : \mathbb{R}_{t} \to \mathbb{R}^{2}_{(u,v)}$ by
$$\gamma(t) = \left( \frac{t}{\sqrt{t^2 + 1}}, \frac{1}{\sqrt{t^2 + 1}}\right),$$
and observe that this covers all of the (strict) northern hemisphere of $S^{1} \subseteq \mathbb{R}^{2}_{(u, v)}$. This map is described geometrically below.
Your desired map from $S^{1} \subseteq \mathbb{R}^{2}_{(x, y)} \to \mathbb{RP}^{1}$ is then given by
$$
\Phi(P) =
\begin{cases}
[\gamma \circ \phi (P(x,y))] = \left[\frac{-x}{\sqrt{x^2 + (y-1)^2}}, \frac{1-y}{\sqrt{x^2 + (y-1)^2}}\right], & \text{if } P(x, y) \ne N \text{ } \\
[1,0], & \text{if } P(x, y) = N
\end{cases}.
$$
We have come this far (and I don't particularly like coordinates for maps like these), so I will briefly summarize the construction for the more geometric minded and point to a similar one that I observed after the fact.
- Stereographic projection from $S^{1}\backslash N$ to $\mathbb{R}_{t}$.
- Identify $\mathbb{R}_{t}$ with the line $u = 1$ in $\mathbb{R}^{2}_{(u, v)}$.
- Define a map from the line $u = 1$ to the northern hemisphere of $S^{1} \subseteq \mathbb{R}^{2}_{(u, v)}$ by looking at the intersection of the position vector $\langle u, 1 \rangle$ with the northern hemisphere. (2. and 3. define the map $\gamma$).
- Take equivalence classes and send $N$ to $[1,0]$.
After the fact it occurred to me that you could just as easily do the following (without superficial labels on the coordinates):
- Stereographically project from $S^{1}\backslash (South Pole)$ to the line $y = 1$
- Repeat the map described in 3. above.
- Take Equivalence classes and send the South Pole to [1,0].