It does not work that way.
Motion templates have to be in their designated locations in order for Final Cut Pro to "see" them.
Effects, Titles, Generators and Transitions need to be inside /Users/<yourname>/Movies/Motion Templates,
regardless of the settings for the library.
The choices for "Motion Content" under "Storage Locations" are either "In Library" or "In Motion Templates Folder".
The former means that when you use a given template, it will be copied to the library.
This has the potential benefit of making the library self-contained, ie. if you take your library with you and use it on another mac, there is a chance that some effects are not installed on that other mac; this will avoid that problem, at the expense of creating more copies of the templates (which are usually pretty small, so that is not a big deal).