No, you're not misunderstanding, but I'm not sure what's happening for you. Whether it's for an individual topic, a board, or an entire category, it works for me. And when I click on the mark read button:
it changes to the read indicator:
Are you getting that?
The mark read option for search new works with a Java script, so if not, perhaps you might need to upgrade Java for your browser. The latest version (1.4.1_03) is available for download at
http://java.sun.com - just click on "J2SE 1.4.1" under "Popular Downloads", and then download the JRE for "Windows (U.S. English only)" under "Download J2SE v 1.4.1_03".
I hope that helps.