AS-204 was absolutely production hardware. The later hardware was different because three people died. They died in rehearsal for an actual mission.

> Apollo 1, initially designated AS-204, was planned to be the first crewed mission of the Apollo program.

https://en.m.wikipedia.org/wiki/Apollo_1

The second version was already starting production when three people died. There was never any intention to build any more of the first one, or to send it beyond low Earth orbit.

Changes were made based on the fire. The capsule was “production” in the sense that it was going to carry people. It doesn’t need to be mass produced to be “prod”. It’s prod like “this instance matters”.

Apollo 1 should have been production like it mattered. But instead the first prototype was pressed into service because the real one wasn't ready yet. The fire was proof.

“In service” and “production” are synonymous in this case.

Not as it turned out.