How can I make a variable false for a period of time?

Update() function cant be a coroutine. You have to just define a different function to be a coroutine (in this case setAnimationState() ).

 #pragma strict
  
 var TheDamage : int = 25;
 var Distance : float;
 var MaxDistance = 1.5;
 var TheMace : Transform;
 var inAnim = false;
  
 function Update()
 {
     if (Input.GetButtonDown("Fire1") && inAnim == false)
     {
         TheMace.animation.Play("maceAttack");
         var hit : RaycastHit;
         if (Physics.Raycast(transform.position, transform.TransformDirection(Vector3.forward), hit))
         {
             Distance = hit.distance;
             if (Distance < MaxDistance){
                 hit.transform.SendMessage("ApplyDamage", TheDamage, SendMessageOptions.DontRequireReceiver);
                 setAnimationState();
             }
         }
     }
 }
 
 function setAnimationState() {
     inAnim = true;
     yield WaitForSeconds(0.5);
     inAnim = false;
 }

 if (Distance < MaxDistance){
      hit.transform.SendMessage("ApplyDamage", TheDamage, SendMessageOptions.DontRequireReceiver);
      Delay();
 }
 
 function Delay():void{
     inAnim = true;
     yield WaitForSeconds(2);
     inAnim = false;
 }

Consider using getcomponent instead of sendmessage.

Add a variable, for example "delayBetweenAttacks" and set it to your delay value, for example 0.5. Add another one called "timeSinceLastAttack".

Then modify Update as follows:

 function Update()
 {
     timeSinceLastAttack += Time.deltaTime;
     
     if (Input.GetButtonDown("Fire1") && timeSinceLastAttack > delayBetweenAttacks)
     {
         TheMace.animation.Play("maceAttack");
         var hit : RaycastHit;
         if (Physics.Raycast(transform.position, transform.TransformDirection(Vector3.forward), hit))
         {
             Distance = hit.distance;
             if (Distance < MaxDistance){
                 hit.transform.SendMessage("ApplyDamage", TheDamage, SendMessageOptions.DontRequireReceiver);
             }
         }
         timeSinceLastAttack = 0;
     }
 }