This phase II clinical trial studies how well liposomal cytarabine-daunorubicin CPX-351 (CPX-351) works in treating patients with relapsed or refractory acute myeloid leukemia or myelodysplastic syndrome. Drugs used in chemotherapy, such as liposomal cytarabine-daunorubicin CPX-35, work in different ways to stop the growth of cancer cells, either by killing the cells or by stopping them from dividing.