Why does Elizabeth say that she doesn't believe in witches in Act II?
Elizabeth is made confident by her faith and integrity, and -- as John Proctor says a number of times -- she will not lie. Mr. Hale has come to question the couple about their standing in the church because there are a number of issues concerning their attendance, their sons' christenings, and so forth that worry him. He first asks John if John believes in witches, and John gives a fairly noncommittal answer (however, we know that John is not always entirely truthful). Elizabeth, on the other hand, will not be vague in order to avoid telling the truth. She believes that she is a good woman, that she has only done "good work in the world," and therefore she cannot be a witch. It would not be possible, in her mind, for her to be "secretly bound to Satan," and so she reiterates that if she is accused of witchcraft, then she cannot believe witches exist. She says that she doesn't believe in witches because she cannot lie. When Hale asks her, directly, she knows that the good, Christian thing to do is to tell the truth.
Elizabeth, who is the most constant character in the novel, demonstrates in this scene that she is guided by her own Christian morality and faith, and not the faith that belongs to the town consciousness. When she states that she doesn't believe in witchcraft, she is demonstrating logic. Elizabeth says that if she herself stands accused, then witches must not really exist. For if they did, no one could accuse her.
Elizabeth tells Mr. Hale that she doesn't believe the Devil can own a woman's soul if she has led a proper life. She says she is a good woman who does good works. She can't believe that people can be good, do good works, and be secretly tied to Satan. Then she tells him that if he believes she's a witch, then she certainly can't believe that they exist.