Freshservice provides a Priority Matrix feature that allows you to automatically set the priority of tickets based on the urgency and impact fields.
To enable this feature,
From now on, when a ticket is created or updated, Freshservice will automatically set the ticket's priority based on the values selected for Urgency and Impact.
You can also configure the priority matrix to allow requesters to set the Urgency and Impact values while submitting the ticket. To do this,
By default all incident tickets are raised with low priority and all service requests are raised with Medium priority. Please check if the priority matrix is enabled in admin -> priority matrix. Please reach out to our support team through firstname.lastname@example.org for further assistance
Priority matrix would work only on Incidents and not for Service requests. This should be the reason why you are not able to see the priority change based on the Impact and Urgency of the ticket.