First, a history lesson. The very first Apple computers had displays with 72 pixels per inch. This is the same size as 1 point (a unit of 1/72 inches), so 1 point = 1 pixel. Text at 12pt would display on the screen at 12/72 = 1/6 of an inch.
Modern display screens have much smaller pixels, so you get more of them to an inch. This makes the display of images very clear, but means that objects (such as text) are corresponding smaller.
Your 32-inch 4K display has a pixel density of 150 pixels per inch. So 12 point text will display at less than half the size of the old 72ppi screens!
The solution is for the computer to double the size of everything. This is called "scaling". So when the computer measures the size of something, it 'pretends' it is twice as big, and then it lays it out on the screen.
So your display is using all its 4K pixels, but the objects are twice as large. So a 1 pixel object now uses a 2x2 pixel square, and those pixels can be slightly different to give greater clarity and shading.
The option in System Preferences lets you choose a scaling size. You can make things smaller, and consequently get more of them on the screen; or make things larger, and thus (like zooming in) see slightly less content. But the actual pixels used are the same.
So you are indeed benefitting from the clarity and sharpness of the 4K display, but with objects scaled to a size that is more comfortable.