How can I verify that MySQL's slave_compressed_protocol is working I've set slave_compressed_protocol=1 on both my master and slave.

Using SHOW VARIABLES, I can see that it's set.

How can I check that it's actually working?
Connection Phase of the Client/Server Protocol

At the Client Response, there is crosscheck of capabilities between the client and the server. The CLIENT_COMPRESS flag (value 0x00000020) needs to be mutually exchanged before continuing authentication.
To be honest with you, I have never heard of a MySQL question this deep. Good the thing all of this appears in the MySQL Internals Documentation.
How on earth would you actually know where to intercept the CLIENT_COMPRESS ?
I would suggest using tcpdump or snort to inspect packets.
I will leave it to you to read up on the needed exchange packets

Protocol::Handshake
Protocol::HandshakeResponse