Step 1: Read the two statements.
Statement I says conductivity of a solution decreases on dilution. Statement II gives the overall reaction of a hydrogen-oxygen fuel cell. We judge each.
Step 2: Understand conductivity.
Conductivity is the current-carrying power per unit volume. It depends on how many ions are present in each unit of volume.
Step 3: Check statement I.
When we add more water, the same ions spread out into a larger volume, so the number of ions per unit volume falls. This lowers the conductivity. So statement I is correct.
Step 4: Recall the fuel cell reaction.
In a hydrogen-oxygen fuel cell, the gases combine to make liquid water and produce electricity. \[ 2H_2(g) + O_2(g) \longrightarrow 2H_2O(l) \]
Step 5: Check statement II.
The statement writes the reaction the other way round, which is actually the electrolysis of water, not the fuel cell. So statement II is wrong.
Step 6: Combine the results.
Statement I is correct but statement II is not correct. \[ \boxed{\text{I correct, II not correct}} \]