I have F5 key bound to the show desktop shortcut in keyboard shortcuts. However when I press F5 on the keyboard (with fn on the built in keyboard, or with/without fn on the Apple wireless keyboard), nothing happens. If I try to bind it to anything else such as mission control or notification center, it just works. Any idea why?
Create a test user account on your Mac. Adjust this same setting. See if it works. If it does, I recommend moving the following file on your user account to the Trash:
Then log off & back on. This will reset all Keyboard Shortcut settings back to default. If it doesn't fix it or causes other issues, simply drag the .plist file back to its former location.