Custom 404 not working in my nginx droplet, please help?

I’m am new in nginx and before I user apache web server. So I got to know that .htaccess does not works in nginx, after doing some research I got to know about nginx.conf. When I added the 404 code in http inside server tree and reloaded nothing happens and the default 404 page is returned.

error_page 404 /404.html;
location  /404.html {
  internal;
}

I even tried doing this in my /etc/nginx/sites-available/default conf, but still no luck, however Im confused where should I put the code, in sites default conf or in the global nginx conf. Can some one please give me brief on this topic! Appreciate your help