That option confusingly enough means that Veeam will do copy only for the snapshot full backup, not the log backups. The GUI is confusing.
I suggest you change that option to "Perform copy only" and then (re)visit the backup history tables to verify that the full snapshot backup is done using copy_only.
I don't have an environment where I can test this, so I consulted a whitepaper I wrote for Veeam 5 years ago. Back then I did have access to an environment so hopefully the information in that WP is correct (it was proof-read as well :-) ).
Here's a quote from that WP:
"As for the “Transaction logs” option, you want to select “Perform copy only” if you perform your own SQL Server backups. This way the Veeam snapshot backup will be seen by SQL Server as a COPY_ONLY backup and will not interfere with any differential backups that you produce in SQL Server. "
You can find it here, https://www.veeam.com/wp-sql-server-backup-with-veeam.html. I think that you can get to the pdf by registering and also get the screenshots that way.