How does the "notify" feature notify me?
https://bitcointalk.org/index.php?action=profile;sa=notificationYou currently have notifications enabled on three topics, listed there. You will receive an email for the
first new post in those topics. You need to visit the topic and read the new posts before you will receive additional emails. If you're not receiving emails, then they're being blocked/spammed by your email provider.
And how can I drop a post that I am no longer interested in from the "show new replies to your posts" area?
You can't, and there's no reason to do so. By default, the watchlist page is exactly the same as "show new replies to your posts" except that you can unwatch topics that you don't want to see.