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I've fooled around with multiple early games trying to get all the subtleties down before finishing a game.

That message is brand new to me. Every time Paris is captured, France calls it quits.
French morale is just a lousy 11%. Not enough losses before Paris fell?

What happened here?
It was weird enough to have Germany reject the Polish partition this game. Russia ramping up production very well for 1940.

For the French to surrender their National Morale musto go to 0, as with most nations in game.
Now, taking Paris is usually enough to blast French NM to pieces. Usually. Sometimes they need an extra push even after Paris. In that case, the capital moves to Bordeaux.

Some reasons for the French to have some NM leftover and not surrender:
1. British units are still in France (this gives French some resistance to NM shocks)
2. Not enough French units destroyed. Maybe the axis had a swift and bloodless capture of Paris.
3. Some decisions like the banning of the French Communist Party grant some NM boost (in exchange to Soviet mobilization penalty)
4. Maybe the French fleet destroyed some Italian/German surface vessels getting some nice 2-3K NM in the process.

Probably the Italian slaughter. Wiped out the majority of the Italian fleet with France leading the charge. 10 Italian ships were toasted.