Why isn't my GUI that runs when the tool is equipped executing?

Decided to answer this because the last answer was unclear and didn't even put the real directory of the GUI...

On line 2 you put:

local GUI = game.StarterGui.ScreenGui

This is technically right, however it's not the actual player's Gui. The StarterGui service contains everything that is cloned into a thing called PlayerGui inside the player. The PlayerGui is what the player sees, not the StarterGui. So you were changing the Gui that is cloned into the player, meaning if you reset after you selected the tool it would have probably changed it on your new Gui.

We have to find the player's PlayerGui, and since we are uising a local script we can do game.Players.LocalPlayer and it will get the local player without needing the name. Then we will get PlayerGui which is a child of the player, and then finally your Gui called ScreenGui.

local GUI = game.Players.LocalPlayer.PlayerGui:FindFirstChild("ScreenGui")

Final Script:

local Potion = script.Parent
local GUI = game.Players.LocalPlayer.PlayerGui:FindFirstChild("ScreenGui")

local function Selected()
    local TxtBox = Instance.new("TextBox") -- Removed the Instance Parent
    TxtBox.Parent = GUI -- Added parent code
    TxtBox.Position = UDim2.new(0.5,0,0.5,0)
    TxtBox.Size = UDim2.new(0.5,0,0.5,0)
    TxtBox.BackgroundColor3 = Color3.new(0,0,0)
    print("1")
end

local function Deselected()
    local TxtBox = GUI:WaitForChild("TextBox")
    TxtBox:Destroy()
    print("2")
end
Potion.Equipped:Connect(Selected) -- Changed :connect to :Connect
Potion.Unequipped:Connect(Deselected) -- Changed :connect to :Connect

In addition I've included changes to your script to make it all up to date. :connect is deprecated for :Connect and Instance's Parent argument is deprecated. Commented at the end of the lines I changed.