From Creatures Wikia
Generation refers to the number of ancestral crossings any particular creature is the result of. All creatures produced by Muco or an Egg Layer are counted as first generation, or G1. Breeding two G1s together results in a second generation creature, or G2, and so on. Any hatched creature will inherit its generation ranking from the parent which had the highest number, plus 1. Breeding a G2 Norn with a G25 Norn will produce G26 offspring.
Convention within the CC is to name the products of a particular generation with names beginning with the appropriate letter - eg. G10 norns would have names beginning with J, the 10th letter of the alphabet.