The reason you can't pick the new instance inside the function is that C2 does not complete creating the new instances until the next top level event. (That is why you can outside the function - because it is in a different top level event.
Inside the function you can continue to access the new instance in sub events, under the one that created it. So, you could add a sub event inside the for loop that says if numberDisplay.display_number=1 then set Text to "A"
Since you try to pick the instance outside the loop, but before a top level event, C2 has not added the new instance into its internal indexes and can't find it.