To find the derivative of y=x^y when y is not expressed in terms of x, the process involves taking the natural logarithm of both sides, leading to ln y = y ln x. The derivative is derived through implicit differentiation, resulting in y' = (y^2)/(x - xy ln x). The discussion highlights the challenge of expressing y as a function of x, noting that y cannot be directly expressed in this form. An alternative equation, x=y^x, is suggested as more manageable for differentiation.