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x = [0,0]
print(x)
def incrment():
  x[0] = 1
  x[1] = 2
incrment()
print(x)

y = [0,0]
print(y)
def increment():
  y = [1,2]
increment()
print(y)

why does the first code work and the second doesnt!!

Everything works fine! In case of x-variable 'incrementation', when you call increment(), x[0] = 1 uses x-object from outer scope, exactly, x[0]=1 is equivalent for x.__setitem__(0, 1), but there is no x-object in the increment function, so, x.__setitem__(0, 1) uses x-object from global/outer scope, and x (from outer scope) becomes equal to [1,2]

In case of y variable you perform assignment y=[1,2], this lead to creation of local variable y, that is visible only inside the increment function. Therefore, y-variable from global/outer scope doesn't change.