You're display capturing the screen that OBS is on. This is called the Droste effect, just like pointing a camera at a TV showing what the camera is seeing. Move OBS to a non-captured screen.
As for why it's only showing that one bit, it appears the capture has been stretched larger than the canvas (the diagonal stripes show the part of the capture outside the canvas). Click on the Display Capture in the Sources list, and hit CTRL+F (fit to screen) to get it back to a normal size.