I'll answer my own question here since I figured it out and it wasn't obvious.
I did a test by removing my Alimony Paid from my federal interview completely, and saw that my California refund went down, proving that it does apply and work. I just wish it was obvious and that TurboTax asked or confirmed about this when doing the state taxes. I also checked that it shows up in the filled out Schedule CA (540) form.
