If I switch that setting mentioned to "No" and put a full framed blue background on the track below I see a blue frame with a small slice of your color gradient which is right what the mask is intended to do.
But if you mean the given background which is blue - this one is not full framed at the time you use the mask for the gradient but heavily reduced in size by Pan/Crop, so it is hidden by the mask of the upper track. Use a full frame background and you will see.
And in the screenshot you just posted you still have the mask applied to the fx.
Yes I realise that. Now I want to DEFOCUS the SLICE!
Then you need to use media which actually is affected by the Defocus FX within that slice. The one you use (the gradient) does not. Technically it is affected but optically it is like doing black&white to black or white.
Hah! How about if I separately rendered out that Grad to MXF, making it a piece Video Media? Would that work?
No. It is a smooth gradient. In most part of the frame there is just no difference whether it is defocused or not.
You're trying to make a circle round, the night dark, the water wet.
Edit:
Uploaded a modified project of yours. The only thing I changed there is I added a sharp foto as Take where your gradient is (you still can switch between them with key "T"). You will see the defocused slice on the sharp media, but - of course - not on the smooth gradient.
Madness. Utter bonkersdom!
Thanks for your input today. I'm going to get what I want another way.
Marco, thank you.