Dazzle was meant to fool coincidence rangefinders. The method of operation of such a rangefinder is that you see two halves of a picture, and your job as the operator is to adjust a range knob until the two halves "line up" and produce a single picture. By making parts of the ship easy to mistake for other parts, dazzle made this hard.
Dazzle fundamentally failed at this task because the primary opponent, Imperial Germany, did not use coincidence rangefinders. Instead, they used stereoscopic rangefinders, against which Dazzle had little effect. (Incidentally, the Germans also went to war with a naval camouflage paint scheme that was best designed to defeat their own instruments, and was notably less effective against the Royal Navy.)
Dazzle fundamentally failed at this task because the primary opponent, Imperial Germany, did not use coincidence rangefinders. Instead, they used stereoscopic rangefinders, against which Dazzle had little effect. (Incidentally, the Germans also went to war with a naval camouflage paint scheme that was best designed to defeat their own instruments, and was notably less effective against the Royal Navy.)