Why are people of Paradis Island called spawn of devil? In Attack on Titan, why are people within the walls called devils? Also, why didn't they know that they are on an island?
Why people within the walls are called devils?

Because Marley government (run by the tybur family) taught their people and eldians that, and especially their warrior candidates, since they are so young and can easily believe it.

why they didn't know that they are on an island?

Simply because how would they know if they didn't reach the ocean? and besides that, even Eren didn't (probably, since it's wasn't mentioned in anime) tell them they were on an island.