How does craft ratio stack?

Craft effectiveness does not affect the upgrades in the Workshop menu, no. If you look further down on that tab, you should see a number of resources that you can craft out of other resources. Also, as a convenience, any crafted resource you have made previously will be listed on the left panel, under your main resources, with buttons for easy crafting. Each time you craft one of these resources, you will by default produce one unit of that resource. The workshop's craft effectiveness boost is to that amount produced.

So, with only one Workshop, spending 175 units of Wood will create 1.06 units of Beam. With five workshops, it will produce 1.3 units of Beam.

This boost is incredibly useful, especially as the game progresses, and you start crafting new resources out of other crafted resources. As well, it is one of the few things in the game that has no diminishing returns; a hundred Workshops means producing seven units of everything you craft.

One caveat: While crafting Wood out of Catnip does appear in the list on the left, Catnip Refinement is not affected by the Workshop craft effectiveness boost.