How do I prevent term from being created on create_term hook?

create_term as you can see in inline docs in code

Fires immediately after a new term is created, before the term cache
is cleaned

So you can’t prevent an event after that event already happen.

To prevent a term is inserted you can use 'pre_insert_term' filter hook and return a WP_Error a 0 or an empty string.

Example:

add_filter( 'pre_insert_term', 'prevent_add_term', 20, 2 );

function prevent_add_term( $term, $taxonomy ) {
  if ( $term === 'i-am-a-bad-term' ) {
    $term = new WP_Error( 'invalid_term', 'Term you tried to add sucks' );
  }
  return $term;
}