@Mark Barge The setting that you are using controls the number of activity/orchestration functions per instance and in the case of concurrent requests, should scale out to multiple instances based on the events (in this case queue messages from durable functions). This should happen once every 30 seconds and is decided by the scale controller as mentioned in the docs in a way unique to each trigger type.
So, if you have the single activity function taking up all resources, the scale controller should scale out your function app during this cycle, but not directly on calling an activity function. To understand more about the scale controller decisions, you can enable scale controller logs.
To improve scale out, you could switch to using the Premium Plan which along with faster scaling offers higher CPU count per instance.