You basically have it already:
>>> mylist = [["quux", 1, "a"], ["bar", 0, "b"]]
>>> mylist.sort(key=lambda x: x[1])
>>> print mylist
gives:
[['bar', 0, 'b'], ['quux', 1, 'a']]
That will sort mylist in place.
[this para edited thanks to @Daniel’s correction.] sorted will return a new list that is sorted rather than actually changing the input, as described in http://wiki.python.org/moin/HowTo/Sorting/.