Help with random players?

You need to make two separate variables for the two players.

The way you're doing is getting a random player from the second player to the last player in the table, so the first player in the table is totally ignored. Since you're adding only one player, the script errors because duelplayers[2] is nil.

You should get something like this when you're done:

local player1,player2 --Creates the player1 and player2 variables for use in the script.

while wait() do
    contestants = {}
    for _, player in pairs(game.Players:GetPlayers()) do
        if player and player.Character then
            local humanoid = player.Character:WaitForChild("Humanoid")
            if humanoid and humanoid.Health > 0 then
                table.insert(contestants, player)
            end
        end
    end
    if #contestants >= 2 then
        break
    else
        statustag.Value = "Waiting for enough players"
        timertag.Value = -1         
    end
end

local duelplayers = {}
player1,player2 = contestants[math.random(#contestants)],contestants[math.random(#contestants)] --Multiple assignment to assign two variables on one line.
if player1 == player2 then repeat player2 = contestants[math.random(#contestants)] until player1 ~= player2 end --If the first player is the second player, then it finds another random player until player1 is not player2.
table.insert(duelplayers, player1) --Add player1 to the duelplayers table.
table.insert(duelplayers, player2) --Add player2 to the duelplayers table.
statustag.Value = duelplayers[1].Name .. " vs. " .. duelplayers[2].Name --This line should not error because duelplayers[1] and duelplayers[2] should exist.
Instance.new("StringValue", script.Dueling).Name = duelplayers[1].Name
Instance.new("StringValue", script.Dueling).Name = duelplayers[2].Name
duelplayers[1].Character:MoveTo(arena:WaitForChild("Spawn1").Position)
duelplayers[2].Character:MoveTo(arena:WaitForChild("Spawn2").Position)

I hope my answer helped you. If it did, be sure to accept it.