You only have 2 categories, you have both of them selected, and all of your posts are in one or both of those categories; it appears to me that you're getting exactly the result the settings are set for.
As for the "intro text", do you have a separate excerpt created for each post (you'll have to enable the excerpt editor in the "screen options" dropdown on the post edit page)? If not, it will use the full post text.
I actually have three categories: "Uncategorized" "Building a Better Life" and "Building A Better Business". The masonry widget is displaying 1 post from "Uncategorized", 2 posts from "Building a Better Life" and no posts from "Building a Better Business". The only categories I have selected are "Building a Better Life" and "Building a Better Business".
I was using the "More" tag which was displaying the entire text in the Masonry widget. I added an excerpt and it now shows only the text I have selected, but there is still no read more button.