Each successive station was built to replace the last;
There's an extensive Q+A on the Midwinter website in which JMS gives a number of key facts about the earlier Babylon Stations including the fact that the budgets for each station weren't passed until the previous station had been destroyed. Additionally, materials for each station were rolled into the next;
The EA has owned all of the Babylons; 1-3 were sabotaged early in
construction, so it wasn't too much of a loss. They dumped a BIG
budget into B4, and when that died, barely passed the budget for #5,
skimping all the way. cutting it down to bare bones operating
expenses. They will and would never approve a #6.
B1-B4 were located in roughly the same sector, with B4 using some of
the materials from 1-3 leftover. B5 was constructed about 3 hours
(travelling time in real-space) from the location of B4.
In-universe, Jinxo confirms this in the episode 'Grail'.
"The day I came to Babylon, we didn't number them at first"
Out of Universe, JMS stated that the series couldn't be called Babylon, Babylon 1, Babylon 2, Babylon 3 or Babylon 4 anyway because;
Remember the song "Babylon," (by, I believe, Donovan?) We did a
titles search before we began production, and the title Babylon 1 has
been used 4 times, Babylon 2 has been used twice, Babylon 3 appears in
a copyrighted song title, and Babylon 4 has also been used (though
neither copyrighted nor trademarked, so we've taken that step)