Can't get the kernels to connect with a conda environment

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I have been doing a lot of research to try to figure this out but I cannot 'crack it'.

I have created an environment called 'stats' in Conda and would like to use it. So I go to VS code and then open an existing Jupyter Notebook. I choose the interpreter at the bottom left... I do not fully understand it but I leave it with the Conda base.

Then, in the actual jupyter notebook I choose a kernel on the top right, in this case I choose the environment I created 'stats'.

Then VS code shows a little notification at the bottom that says 'Switching kernel to 'Python 3.8.5 64-bit ('stats': conda)' but never switches and stays in 'Python 3' from Anaconda3.

Can anyone shed a bit of light? I feel so confused. I spent few hours trying to figure it out but I really can't. Microsoft youtube videos puts it as 'plug and play' or 'simple'. I really don't think it is. It's very confusing!

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