Excludes stop any runways, coastlines, rivers, roads or reefs in any layers below where its placed from being displayed.
When viewed in the scenery library screen, make sure any add-on scenery layers are above it, but Default Scenery & Terrain layers are below it.
Maybe a couple of screengrabs make it clearer. These are overhead PNG_Awar from my Saidor-Madang scenery pack. The first has the exclude layer enabled, the second has it disabled. See how the stock coastlines reappear, giving you "double coastlines" if you don't have the excludes active?
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