Initially you didn't indicate it was external, and since I lack sufficent experience there I can't properly advise. Hopefully others will come to your aid.
As to the free space defrag, I tried it once and didn't notice any improvement.
Followed by 5 or 6 Tabs which determine whether the space below shows a Drive Summary or a File List, or a Search or a Drive Map or Health or Highlighted.
You appear to edited the display and made it unintelligible to me.
I suggest you Analyze and click on the Tab "Drive Map".
With luck that will show below the Tabs what the different colours mean, and "Edit Settings" will allow you to change your colours.
A single complete screenshot of the entire Defraggler display would give a basis for discussion.
-once enough files are added to fill the first region they will start filling the other side
That's exactly what I expected, but it hasn't happened!
The added data filled the first region, then stopped showing up, like it was being written on the purple area (check my first image).
Only after many GBs, it reappeared to the other side.
Currently I'm not worried about the vastness of the "reserved MFT space", but only that Windows is not considering it, whilst DF is (at least graphically).
-In your first post you referred to 500+ fragmented files
Sorry, I haven't been clear. The 2 problems are unrelated to each other.
Free space defrag on other hdisks caused fragments.
It's solved by a simple defrag, but it should't happen in the first place.