If GPS is active then it uses GPS for speed, the sensor is only used for cadence which indicated the sensor is not being sensed (either it is misaligned or has a dead battery). If you are indoors and only got speed it indicates the crank sensor magnet is misaligned. Did you get the chain ring symbol locked on before you started? To see is the sensor is turned on press down from the clock, select Sensors, Bike and On. Try turning the pedals and see if it gets a reading (it will show you speed and cadence on this screen). Also make sure your sensors are set up properly with the minimum spacing between the sensor and the magnets (sounds like they are if your phone is finding them). Next, make sure no other devices are using the sensors. If you previously synced with a phone on you will need to turn it off before the watch will pick up the sensor. BT is a one-to-one relationship so it goes with the first device it finds. Deselect the sensor from the app and turn off BT on your phone and try it again with the watch. If the watch is not sensing the sensor, try pairing the sensor with a phone app (I like Wahoo Fitness) and see if that recognizes it. If so, the issue is with the watch, if not, it is with the sensor. If the sensor works fine and you have the pairing properly sorted out, you may want to try a factory reset and if that fails, contact Customer Support.
It should theoretically work if the device is a dual speed/cadence sensor transmitting in BT+. Press down and go to Sensors>Bike> On and then spin the pedals to start up the sensor. The sensor screen will show the cadence and speed it is picking up. Make sure you set the tire size correctly as well by going into the cycling activity and pressing down and selecting Tore Size and inputting the correct value. Finally, when installing the sensor, make sure all the magnets are within proximity to the pod (within 2-3mm). You may need to tilt the pod into the back wheel well to pick up the spoke magnet.