My understanding is that these names need to be unique to all CloudSQL instances. In this case, you might simply be running up against a whole bunch of other users who decided to use the name 'test' for their first instance and the number got auto-incremented. It's also possible that this got a little out of hand in terms of overuse of 'test' for an instance name so 'test' + {number} might just not be allowed anymore (but that's pure speculation).
If you try a naming convention like: {your company name}-test and then try to create {your company name}-test1 it should work just fine. That way you can still specify that it's a test instance, and then use the {your company name} prefix for future production instances.
Hope this was helpful/correct,
-Kurt
p.s.: I'm not affiliated with google in any way, but have been using CloudSQL for a couple years now and I might be one of the users who created a test+number instance when I first started out :)