It sounds like you are doing this correctly. Because you took a distribution, entering in those past contributions let the IRS know you have already paid tax on that money, so that's why your refund went up.
Before you entered it, you were being taxed on the distribution in excess of current year's contributions. But now, more (or possibly all) of that distribution is tax-free since you made contributions in prior years. Since you reported that you already paid tax on that income, you are not charged again this year when you withdrew it.
