The 127.0.0.1 in the “Session entry URL” means that you accessed a local development server on your own machine, not that your IP is 127.0.0.1
The setting you’re adjusting refers to the visitor’s IP address, not the URL. If you want to disable tracking on the development site, you can turn on DNT (do not track) or use a method similar to what is mentioned in this article:
You can also apply a filter to your reports, or a segment that will exclude 127.0.0.1