According to your screenshot, you have this option checked:
- Prevent your Mac from automatically sleeping when the display is off
That means when you shut your lid (and the display shuts off), your laptop does not go to sleep.
Most people do not have that checked, as the default behavior is sleep.
P.S. BTW, I used Monterey’s “image to text” feature to copy and paste that line exactly from your screenshot without having to type it! Love it! 