The CC sender option will place the email address of the person logged into WordPress and sending the email in the CC field. About the only time you might want this is if you are using the Send User Override functionality which causes the email’s “From:” address to be different than the default (which is the address of the current logged in user).
When sending to multiple recipients, the sender’s email address will be used in the “TO” line because many email systems, for spam control, reject email messages that only have addresses in the BCC field with an empty TO field. This caused too many problems to the sender is always used as the TO recipient when sending to multiple users whether using Roles or multi-user selection.
The steps you noted above are correct and the recipient email addresses should all be in the BCC field.
Can you contact me via email using my WordPress username (you’ll see it if you hover over “member” next to my gravatar icon) at Gmail dot com? I have some things we can try but I’d like to see an example email if possible that has the recipients in the CC headers.