There is two types of failsafe, the RC receiver failsafe and the onboard failsafe.
The onboard failsafe: It monitor the input signal. If something wrong from wiring, failsafe values stored onboard are loaded. You can setup all inputs while the failsafe is enabled: Sticks (cut Throttle or low Throttle) and flightmode position (usually attitude)
The Rc failsafe:You need to setup the Rc failsafe first, some receivers still output valid signal so the board cannot know if the radio link is lost or user smoke a cigarette.
Same as above, set all sticks and switches for failsafe state you want and store values in receiver. If receiver stop sending signal to board, the onboard failsafe is applied.
You need to test how your Rc receiver works when link is lost: remove props first !