Instead, it is only clipping a rectangle.
I have not used in QGIS in a while so maybe I'm missing a step?
Create shapefile (polygon in this case) > raster > extraction > clip raster by extent > clipping extent (polygon)
Output:
the light grey is the original image, and the slightly darker image is the ''clipped'' image. Note how it does not match the polygon.
I am using QGIS 3.16.3 on Ubuntu 20.04