I believe what happens is in "On RedBlock drag&drop Drop" the system picks just 1 RedBlock instance, the one you dropped.
Then inside this event you check "If RedBlock overlapping RedBlock" and because there is only 1 instance picked, this sub-event will never be true.
There is a simple workaround - create a family with just one RedBlock sprite, name it RedBlockFamily.
Then you will be able to do this:
On RedBlock drag&drop Drop
If RedBlock overlapping RedBlockFamily
RedBlock destroy
RedBlockFamily destroy // if you want to destroy both red blocks
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