I've encountered this example of implicit differentiation. The problem asks us to find the derivative of $y^2 + x^2 = 4$
How can they assume that y is a function x when it clearly is not? If we isolate y, we get: $y = \pm \sqrt{4-x^2}$. So then how can we assumt that y is a function of x?
On a high level, I'm still a bit confused. So I guess implicit differentiation is useful when we have relations between y and x that aren't functions. That's why the $\frac{dy}{dx}$ is in term of 2 variables. $\frac{dy}{dx}$ has two values depending on the value of x and the value of y since at x, there are 2 values of y. Is that right?

First, let's double-check the answer they found:
$$ y^2+x^2=4 \rightarrow y=\pm\sqrt{4-x^2} $$ Case 1: $y=\sqrt{4-x^2}$
$$ \frac{dy}{dx}=\frac{1}{2}(4-x^2)^{-0.5}(-2x)=-\frac{x}{\sqrt{4-x^2}}=-\frac{x}{y} $$
Case 2: $y=-\sqrt{4-x^2}$
$$ \frac{dy}{dx}=-\frac{1}{2}(4-x^2)^{-0.5}(-2x)=\frac{x}{\sqrt{4-x^2}}=\frac{x}{-(-\sqrt{4-x^2})}=-\frac{x}{y} $$
Now to your confusion. When you said $y$ is not a function of $x$ because $y=\pm\sqrt{4-x^2}$, you were contradicting yourself because clearly, $y$ is a function of $x$, namely $y=f(x)=\sqrt{4-x^2}$ or $y=f(x)=-\sqrt{4-x^2}$. Which one is the function depends on the conditions on $y$. For example, if the problem says that $y$ is always positive, we will know that $y=\sqrt{4-x^2}$. $$$$The ambiguity in the actual form of $y$, however, does not affect the relation between $\frac{dy}{dx}$ and $x$, as found in the answer by using implicit differentiation. $$$$ Note that we must know whether $y$ is a function of $x$ or $x$ is a function of $y$ when doing implicit differentiation. This is important because $y=f(x)$ does not necessarily mean a function $x=f^{-1}(y)$ exists.