Filters are applied to incoming messages, and only to them. Every new message is unread when it arrives, so basically the Filter is just adding a label to every new message.
A Filter does not remove the label once the message is read, because as noted above they only apply to incoming messages when they arrive.
To apply your "Not Read" label to existing unread messages, don't use a Filter for that. Just search for "is:unread", select all, and apply your Label. (When you set up a Filter, Gmail will also offer to do that for you; but it's not really the Filter that does it.)
It sounds like what you might want is a Quick Link, with one of them set to search for "is:unread". The Quick Links function is one of the Gmail Labs. By any chance, does the Android version support the Quick Links lab?
Andy