"I can't seem to get variables to be highlighted in the editor."
MATLAB automatically highlights all reachable instances of a variable when you click on it:
I suspect that you do not actually mean highlighting (which refers to a rectangular background of a different color to the normal background) but to changing the text color: the MATLAB IDE does not have an option to select a different text color just for variables.
"Variables with shared scope" does NOT refer to ALL variables in a function. It refers only to variables that are common across multiple workspaces, e.g. those used in a nested function and also in the main/parent function.
That option works correctly on my MATLAB version (R2015b), as I show below:
You can see how the shared variable z is colored when I select that option, and not colored when the option is not selected.