TypeError: 'str' object does not support item assignment (Python)

You cannot modify the contents of a string, you can only create a new string with the changes. So instead of the function above you'd want something like this

def loop(input):
    for index in range(0, len(input)-3):              #column length
        output = input[:index] + '***' + input[index+4:]
        print output

Strings are immutable. You can not change the characters in a string, but have to create a new string. If you want to use item assignment, you can transform it into a list, manipulate the list, then join it back to a string.

def loop(s):
    for index in range(0, len(s) - 2):
        output = list(s)                    # create list from string
        output[index:index+3] = list('***') # replace sublist
        print(''.join(output))              # join list to string and print

Or, just create a new string from slices of the old string combined with '***':

        output = s[:index] + "***" + s[index+3:] # create new string directly
        print(output)                            # print string

Also note that there seemed to be a few off-by-one errors in your code, and you should not use input as a variable name, as it shadows the builtin function of the same name.

In Python, strings are immutable - once they're created they can't be changed. That means that unlike a list you cannot assign to an index to change the string.

string = "Hello World"
string[0] # => "H" - getting is OK
string[0] = "J" # !!! ERROR !!! Can't assign to the string

In your case, I would make output a list: output = list(input) and then turn it back into a string when you're finished: return "".join(output)

In python you can't assign values to specific indexes in a string array, you instead will probably want to you concatenation. Something like:

for index in range(0, len(input)-3):
    output = input[:index]
    output += "***"
    output += input[index+4:]

You're going to want to watch the bounds though. Right now at the end of the loop index+4 will be too large and cause an error.

strings are immutable so don't support assignment like a list, you could use str.join concatenating slices of your string together creating a new string each iteration:

def loop(inp):
    return "\n".join([inp[:i]+"***"+inp[i+3:] for i in range(len(inp)-2)])

inp[:i] will get the first slice which for the first iteration will be an empty string then moving another character across your string each iteration, the inp[i+3:] will get a slice starting from the current index i plus three indexes over also moving across the string one char at a time, you then just need to concat both slices to your *** string.

In [3]: print(loop("ABCDEFG"))
***DEFG
A***EFG
AB***FG
ABC***G
ABCD***