First, the carryover capital loss should not show up on Form 4797 at all.  That should ONLY be reflected on Schedule D.  If you entered it somewhere on 4797, get rid of that.

As for applying the carryover capital loss to the gain, yes, it should do that.  The sale on Form 4797 should be reported in Part 3 of 4797.  That gain flows to Lines 6, 7 and 9 of 4797, then ends up on Line 11 of Schedule D.  Is it doing that?  If not, you need to track down which line is the problem.