I think this circuit might exhibit a response more like you expected.
simulate this circuit – Schematic created using CircuitLab
As others have commented D1 has to pass all the current in the circuit. In the modified circuit the voltage across D2 + R1 varies with the potentiometer and so the current through D2 does as well. As the pot is turned down D2 will dim to the point where it turns off.
The circuit still won't be exactly what you expected because D1's current still depends on the pot setting as the pot wiper is moved up D2 will glow brighter but so will D1 because all the circuit current passes through it.
Try it and see. It will be instructive to connect your voltmeter between the wiper (+) and the bottom of the pot (-). If your meter has a mA range then try connecting that in series above D1, below D1 (should be the same), at the bottom of the pot and in the D2 - R1 branch.
You can also learn some of the characteristics of an LED if you connect the meter across D2. You should see the voltage rise a good bit before you see any light. You will notice that the voltage maxes out at some point (about 1.8 V for a red LED). All this should teach you that the LED's voltage and current relationship is like that of a diode and not like a resistor.