This is to limit the visibility on an issue. You set the security level when you create/edit an issue.
You cannot override the project permissions though. That means you will have to open the project to all (say X & Y) and then limit the issue to selected users (only X or Y)
Think of it in layers. The first is the "permission scheme", which is at project level. If that blocks them from the project, then that's it, they see nothing more. Issue security is irrelevant because they can't get past the first layer. Then, there's a second layer, of "issue level security" which is based on an attribute on the issues. That's checked for each issue they might try to look at in the project to see if they are allowed to.
You set project security at the project level as a one-off. Issue level security is done by a field on each issue which you can have on the issue create screens.
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