while True means loop forever. The while statement takes an expression and executes the loop body while the expression evaluates to (boolean) "true". True always evaluates to boolean "true" and thus executes the loop body indefinitely. It's an idiom that you'll just get used to eventually! Most languages you're likely to encounter have equivalent idioms.

Note that most languages usually have some mechanism for breaking out of the loop early. In the case of Python it's the break statement in the cmd == 'e' case of the sample in your question.

Here's a really simple example where continue actually does something measureable:

animals = ['dog', 'cat', 'pig', 'horse', 'cow']
while animals:
    a = animals.pop()
    if a == 'dog':
        continue
    elif a == 'horse':
        break
    print(a)

You'll notice that if you run this, you won't see dog printed. That's because when python sees continue, it skips the rest of the while suite and starts over from the top.

You won't see 'horse' or 'cow' either because when 'horse' is seen, we encounter the break which exits the while suite entirely.

With all that said, I'll just say that over 90%¹ of loops won't need a continue statement.

^{1This is complete guess, I don't have any real data to support this claim :)}

just indent your code correctly:

def determine_period(universe_array):
    period=0
    tmp=universe_array
    while True:
        tmp=apply_rules(tmp)#aplly_rules is a another function
        period+=1
        if numpy.array_equal(tmp,universe_array) is True:
            return period
        if period>12:  #i wrote this line to stop it..but seems its doesnt work....help..
            return 0
        else:   
            return period

You need to understand that the break statement in your example will exit the infinite loop you've created with while True. So when the break condition is True, the program will quit the infinite loop and continue to the next indented block. Since there is no following block in your code, the function ends and don't return anything. So I've fixed your code by replacing the break statement by a return statement.

Following your idea to use an infinite loop, this is the best way to write it:

def determine_period(universe_array):
    period=0
    tmp=universe_array
    while True:
        tmp=apply_rules(tmp)#aplly_rules is a another function
        period+=1
        if numpy.array_equal(tmp,universe_array) is True:
            break
        if period>12:  #i wrote this line to stop it..but seems its doesnt work....help..
            period = 0
            break

    return period