Actually this is by design. There are no special place for featured products in the theme, all products are just shown. So there is no need to set the product as featured, and as you have rightly noticed if they are set as featured they disappear.
If you would like the features products to appear you need to edit this file in the Fashion theme:
And add this code wherever you would like them to appear:
@if (Model.FeaturedProducts.Count > 0)
Please note that you will need to do some styling for this featured products panel.
I hope this is useful!