Yes, that setting would use the full 4k resolution of the monitor - but everything will be scaled to look like 2560x1440.
You can often check whether or not the full 4k resolution is being used by activating the on-screen-menu on the monitor using the physical buttons on the monitor.
Note that settings you're changing here does not "just" adjust the font size. You can adjust font size in word processors, browsers, etc. without changing the display scaling as you're doing here. When you adjust display scaling, you're adjusting the size of most things on screen - i.e. also buttons, window frames, etc.
You mention that you're having problems seeing text "clearly". You should be aware that you have chosen a resolution that won't divide perfectly into the monitor's resolution, and thus you're not getting optimal "clarity".
I.e. your monitor is set to run at 3840x2160 resolution currently. If you output a 3840x2160 signal to it, it will display pixel perfect - but everything will of course be somewhat small in comparison (27" could be considered a large display, but for some even that will seem small).
If you scale your user interface to look like 1920x1080, it can be thought of as double every pixel in width and height. I.e. every pixel becomes 4 pixels, and as such would be "clear" on the display. This is not exactly what happens as some things aren't doubled as such - instead text, videos, etc. are rendered at high resolution.
In your case, you have chosen your scaling to have it look like 2560x1440. That means a non-integer factor between that resolution and output resolution of 3840x2160. I.e. this means that every pixel becomes a cube of 1.5 pixels width and height. As that is not physically possible (you can't actually display half a pixel), this means that the graphics is actually rendered at a higher resolution and then downsampled to what your display is actually capable off. This comes at the cost of "clarity".