Read the pieces of text that you are quoting more carefully.
You are being asked to type the name of an existing branch but you type the name of the branch that you want to create. Providing the wrong information results in an error message, which again informs you that you were supposed to enter the name of an existing branch.
You are not the only person who finds it more natural to provide the name of the new branch first, so magit provides an option that controls the input order. You have already found it:
Magit Branch Read Upstream First: Value Menu read upstream first
Change the value of this option and then you can use the order that you want to use.