"I'm not understanding whats going on here. "
Do you remember with analogue TV, if you used a small TV ariel for portable TVs, sometimes you got a ghost image on the TV?
The ghost image looked like the same image but faded and moved to one side of the main image.
This was due to the TV image being reflected off things like building.
A similar thing happens with electrical signals going through cables. The same signal can be reflected back (bounces) through the cable.
The reflected signal interacts with the original signal, in your case reducing the signal amplitude.
The terminators stop the reflected signals. To understand how and why involves some deep maths (which I never really understood anyway).
Now when you directly connect the FG to the osc, they are terminated correctly - hence you see the correct signal.
However, now that both FG and Osc are expecting correct termination, the Osc probe is not correctly terminated - hence you do not see the correct signal.
The T adapters and terminators are meant to be used in conjunction with passing the signal to your circuit and allow you to view the signal at the same time.
Just found Dave's video
https://www.eevblog.com/forum/blog/eevblog-652-oscilloscope-function-generator-measurement-trap/