This is all related to the scope of the variable. Let's try to wrap both the pieces into functions, and observe the output:
function test() {
  // `i` will be declared here, making it a non-for-loop scoped variable
  const arr = [1, 2, 3, 4];
  for (var i = 0; i < arr.length; i++) {
    setTimeout(function() {
      console.log(arr[i])
    }, 1000);
  } // Prints undefined 5 times
}
test();
 
 
So in the first case, i will be hoisted, and because of the asynchronous nature of setTimeout, i will immediately become 4 as the loop ends without waiting. This will make arr[i] to point to an undefined element in the array.
In the second case, i is not hoisted, and has scoped access to each iteration of the loop, making i accurately available to console.log statement. Thus the results are as per the expectations:
function test() {
  const arr = [1, 2, 3, 4];
  for (let i = 0; i < arr.length; i++) {
    setTimeout(function() {
      console.log(arr[i])
    }, 1000);
  } // Prints all the values correctly
}
test();