Help! My script wont work!

Did you check the unity wiki? http://wiki.unity3d.com/index.php/Underwater_Script

This script is the same as your script but without the mistakes.

also why did you create seperate functions for SetNormal and SetUnderWater? you can just run those in the update.

I'l write an example of your code fixed. But be sure to check the one on the wiki as you might learn from it to.

 #pragma strict
  
 var WaterLevel:float;
 //set the underwater boolean to false by standard
 private var IsUnderWater:boolean=false;
 private var NormalColor:Color;
 private var UnderWaterColor:Color;
  
 
 //you don't need this one as the Color lets you set a color in the editor
 /*
 function Start () 
 {
    NormalColor = new Color(0.5f, 0.5f, 0.5f, 0.5f);
    UnderWaterColor = new Color(0.22f, 0.65f, 0.77f, 0.5f);
 }
  */
 
 function Update () {
 
 //nothing wrong with this 
   if((transform.position.y < WaterLevel) != IsUnderWater)
   {
 
 //You tried to put a float value on a boolean, booleans can only be true or false
 // IsUnderWater = transform.position.y < WaterLevel;
 
 //you need to create a checkup to see if it is below the water level and then turn IsUnderWater to true
 //so don't try to let the bool value to check (this is wrong IsUnderWater = transform.position.y < WaterLevel;), but instead put the last part in an if statement so that the position checks
 //up on the water level.
 if(transform.position.y < WaterLevel){
 IsUnderWater=true;
 }
 //then if the position is above the water level turn it back to false. this can be done with an else statment as it needs to be opposite of the previous if statment.
 else{
 IsUnderWater=false;
 }
 
 //now that we have the script check if the player is under water, turn the boolean according to true or false, we can make a checkup on what it should do.(this happens above).
 
 
 // SetUnderwater ();
 // SetNormal ();you don't need to create a function for just two lines, place it in the if statement itself
 
 
 //we create simple if statement to react on that status of the boolean IsUnderWater and set it to true
 
 
     if(IsUnderWater){
   RenderSettings.fogColor = UnderWaterColor ;
   RenderSettings.fogDensity = 0.03f;
  }
 
 
 //and an if statement if the boolean is false
 
     if(!IsUnderWater){
   RenderSettings.fogColor = NormalColor;
   RenderSettings.fogDensity = 0.002f;
 }
 
  
   }
  
 
 }