In the Assignment settings page the Notify student setting overrides the setting in the individual students grading form. Teachers are unable to change this setting for individual students.
For example in the Assignment settings Notify students = No. A teacher decides to notify an individual student of their grade navigates to that students Grading form changes the Notify student option from No to Yes Saves the change, but when the teacher goes back in to the grading form the option has reverted back to No.
Is this the way this setting is meant to behave?
Changing the notify to 'Yes' means 'When I click Save, send this student a notification about the change I have just made'.
When you next visit the form, the setting will, once again, show the default option of 'No' - the teacher can decide at this point if this new update is something they also want to send to the student (if it is, then they can change it to 'Yes' again for this notification).
There currently isn't a 'Yes and default to sending notifications to this student in the future' option (nor is there and behind the scenes data to save this setting for individual students).