Tearing within the VRR range with the V-SYNC option off is normal, see why here:
As for why you're getting issues with VRR + the V-SYNC option on, you're likely repeatedly falling out of the VRR range because your monitor doesn't support LFC (low framerate compensation)
/the minimum refresh range
, so when your framerate falls below your VRR range (this can even be triggered briefly during frametime spikes), unlike a real G-SYNC monitor (which effectively has a 0 to max HZ range), it just reverts to V-SYNC behavior (or V-SYNC OFF behavior without the V-SYNC option enabled; thus the middle screen tearing) until your framerate enters the VRR range again.
With FreeSync monitors, the only models that really come even close to performing as well as G-SYNC monitors are those that are FreeSync "2," which typically feature a max refresh rate of 100 or more Hz, and support (software-based) LFC across the entire HZ range, and there aren't many of those, thus the reason Nvidia was only able to "officially" support 12-13 of them with this new driver feature.
While many buyers don't like the price "premium" on G-SYNC monitors over most FreeSync monitors, there's a reason G-SYNC does it through hardware, and a reason why they require monitor certification (with certain minimum specs) before allowing a G-SYNC module in the monitor; performance at the lower VRR range is hard to get right, even through hardware, and since no system has perfect performance, this aspect is virtually required for an optimal VRR experience.
That all said, if you want to avoid tearing AND stay within your VRR range (AND we're assuming here that the driver feature is currently working as intended; early days), you'll want G-SYNC + NVCP V-SYNC "On" + -3 FPS limit, and you'll want to ensure your system can sustain framerates within your VRR range as much as possible to avoid these issues and retain a smooth experience.