Let's begin by tabbing and spacing your code out:

local Matches = 0

local function findPlr(plr,str)
	if str == "all" then
		return plr == game.Players:GetPlayers()
	end
	for i,v in pairs(game.Players:GetPlayers()) do
		if v.Name:lower():find(plr:lower()) then
			Matches = Matches + 1
			return v
		end
	end
end

findPlr(nil,"all")
print(Matches) --This just keeps saying 0 :/ So confused >_<

First Return

First, consider the second line of the function,

		return plr == game.Players:GetPlayers()

plr is never going to be that list of the current players (even if it is a list), meaning the second line is equivalent to

	return false

( To understand what I mean by that, consider print(game.Worskpace:GetChildren() == game.Workspace:GetChildren()) )

Instead, you want to return the list, not whether or not the list is equal to some value

	return game.Players:GetPlayers()

Multiple Parameters?

Now looking at it, there isn't very much reason to use two parameters to findPlr perhaps. Just using str is probably enough since you aren't seeming to treat them any different -- they're both strings representing the person to find. The only difficulty would be ambiguity in cases where, for example, "Allison" was current playing which does contain "all".

Second Return

Your first return made a list of players. So that you don't have to do more complicated work later to determine if you're dealing with a list or a single player, you should always return a list (even if it's of only one player).

In that case, when looking for a player with a given name

• Either it doesn't make sense to count how many matches there are, since you're only returning one

• Or you shouldn't return at all inside the loop since you need to compile the full list

Here's making it work for returning the full list of all players with matching names:

	...
	local matching = {}
	for i,v in pairs(game.Players:GetPlayers()) do
		if v.Name:lower():find(plr:lower()) then
			table.insert(matching, v)
		end
	end
	return matching
end

findPlr("all") -- A list of all players
findPlr("BlueTaslem") -- {game.Players.BlueTaslem} (if I were playing)
findPlr("odifjsodifjsdoij") -- {}, a list of length 0