I am trying to automatically apply symbology to my polygons based on a .lyr file by using "apply symbology from layer" on a .shp file. It seems to work if the generated .shp file from the module is manually selected (blue bubble) but not the very same .shp file produced from the module within modelbuilder. See image below for clarification.
As @BERA suggests in the comments, the input you're passing to Apply Symbology from Layer is incorrect. You can only style a layer. You cannot style a feature class. That is, the tool only works against layers. In your example the output of FC to FC is a feature class, as such this isn't valid input to the Symbology tool. Your working example "works" because you're almost certainly have referenced a layer in your Table of Contents as input, thus a layer.
To make it work, you can use the Make Feature Layer tool after FC to FC and use the output from that tool as input to the Symoblogy tool.
Alternatively, within ModelBuilder you can right click the output of FC to FC and select properties. The 3rd tab: Layer Symbology can be used to reference a .lyr file. Thus, you don't need the Symbology tool.
