words[:] copies all the elements in words into a new list. So when you iterate over words[:], you're actually iterating over all the elements that words currently has. So when you modify words, the effects of those modifications are not visible in words[:] (because you called on words[:] before starting to modify words)
In the latter example, you are iterating over words, which means that any changes you make to words is indeed visible to your iterator. As a result, when you insert into index 0 of words, you "bump up" every other element in words by one index. So when you move on to the next iteration of your for-loop, you'll get the element at the next index of words, but that's just the element that you just saw (because you inserted an element at the beginning of the list, moving all the other element up by an index).
To see this in action, try the following code:
words = ['cat', 'window', 'defenestrate']
for w in words:
print("The list is:", words)
print("I am looking at this word:", w)
if len(w) > 6:
print("inserting", w)
words.insert(0, w)
print("the list now looks like this:", words)
print(words)
