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How do you do this on a 2001 S3?

I thought it would be as simple as pressing the button behind the drivers seat, but this does nothing.

Am i doing something wrong, or is broken?

When you press the button, the red led ,that is normally flashing will turn red
permanent, then you must lock the car.
This is how i do it on my A4 2001

Mine neither flashes or constantly red

Do you have the door open with the keys out of the ignition when you press it?

In the RS4 (2001) it works when the door is open and the key in my hand.
When i pressed the button the red led is constantly red, and then lock the car
with the key, not by remote.

The TT had to have the door open and key out the car. You could look with the remote though.