AI script gone wrong please help?

Okay, I'll go in depth a bit more.

So, first, let's change our variables to local, so we're not storing unnecessary data in the script's function environment.

-- Let's make some local variables

local torso = script.Parent.Torso
local range = 50
local armDmg = 5
local torDmg = 10
local target = nil

function findNearestTarget()

    -- Let's also use "GetPlayers()" instead of "GetChildren()"
    -- Notice how we make it a local variable.

    local plrs = game.Players:GetPlayers() 

    for i,plr in ipairs (plrs) do
        if plr.Character then
            if plr.Character:findFirstChild("Humanoid") and plr.Character.Humanoid.Health>0 then
                local tor = plr.Character:FindFirstChild("Torso") -- also local
                if target and tor then
                    if (torso.Position-tor.Position).Magnitude <= range then -- compare distance to our "range" variable.
                        print(plr.Name.." is in range")
                        target = plr.Character
                        break
                    end
                end
            end
        end
    end
end

-- Let's not forget to indent these functions as well.

function hitArm(hit)
    if hit.Parent and hit then
        if hit.Parent:findFirstChild("Humanoid") then
            hit.Parent.Humanoid:TakeDamage(armDmg)
        end
    end
end

function hitTorso(hit)
    if hit.Parent and hit then
            if hit.Parent:findFirstChild("Humanoid") then
                    hit.Parent.Humanoid:TakeDamage(torDmg)
            end
        end
end

script.Parent["Left Arm"].Touched:connect(hitArm)
script.Parent["Right Arm"].Touched:connect(hitArm)
script.Parent["Torso"].Touched:connect(hitTorso)   

while wait(0.1) do -- You can call functions in a loop condition as well.
    findNearestTarget()
    if target then
        script.Parent.Zombie:MoveTo(target.Torso.Position,target.Torso)
    end
end

Now, there are a few things we should elaborate on.

1: Comparing positions

We see in your code that we have something like:

if (torso.Position-tor.Position).Magnitude < (torso.Position-target.Torso.Position).Magnitude then
    -- ...
end

Now, here, we want to compare the magnitude of these 2 vectors, with the "range" variable. So it would now look something like this:

if (torso.Position-tor.Position).Magnitude < range then
    -- ... target in range
end

Other than that, indenting seems pretty good and you should probably get into the habit of using if statements like:

if Variable then
    -- ect
end

-- Oppose to ...

if Variable ~= nil then
    -- ect
end

Just to make the code seem a bit neater, and eliminate obsolete comparisons.

Hope this helped, let me know if you have any questions.