Why is my useEffect not running on first render?

useEffect is called after the first render however the issue in your code is that the words state isn't updated when you think it is.

useEffect(() => {
        setWords(sentence.split(' ')); 
// Here you set the words state that will trigger a new render. However the words variable is empty won't be changed until the next render


        words.map(word =>{ //Here you call map on an empty array.
          if(word.length <= 2){
            scrambledWord.push(word);

          }
          else{
            scrambledWord.push(scrambleWord(word));
          }
        })

        setScrambledSentence(scrambledWord.join(' ')); 
        //Here you set the state on an empty string
      }, [])
// the useEffect doesn't run a second time because it has no dependencies.

This code should work:

    const ScrambleSentence = ({sentence}) => {
    const [scrambledSentence, setScrambledSentence] = useState('');


    function scrambleWord(n){
        var text = n.split('');
        for(var i = text.length - 1; i > 0; i--){
            var j = Math.floor(Math.random() * (i + 1));
            var temp = text[i];
            text[i] = text[j];
            text [j] = temp;
        }
        return text.join('');
    }

    useEffect(() => {
        let scrambledWord = [];
        const words = sentence.split(' ')
        words.forEach(word =>{
          if(word.length <= 2){
            scrambledWord.push(word);
          }else{
            scrambledWord.push(scrambleWord(word));
          }
        })

        setScrambledSentence(scrambledWord.join(' '));
      }, [])


      console.log(scrambledSentence);
    return (
        <div>
            <p id='scrambled-word'>{scrambledSentence}</p>
        </div>
    )
};

export default ScrambleSentence;

https://reactjs.org/docs/hooks-state.html

https://reactjs.org/docs/hooks-effect.html