PokéBase - Pokémon Q&A
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In terms of breeding, gen 2.

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Yes. The red Gyarados counts in every way, shape, and form as a legitimate shiny Pokémon. It is exactly the same as if you had happened upon a shiny Gyarados rather than a static encounter.

Also, in generation 2, all shiny Pokémon have a 1/64 chance of hatching a shiny Pokémon egg.

A warning: hatching eggs in gen 2 is very slow and tedious because there weren’t any egg o powers or the ability Magma Armor (or any abilities for that matter) so just be patient. Also, you could be really, really unlucky. Trust me, Pokemon feels like it’s rigged very often. I spent almost and entire hour breeding froakies until I found a certain nature with a certain ability. And there’s 18 natures lol. (My brother refused to trade me his own froakie even though he has like 10 he can be really annoying sometimes :/)

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There are 25 natures. Gen 2 had a 1/64 chance because Shininess was determined by DVs back then :P
@Staka, nonaturesin gen 2
@Jhoncena, in gen 2 shinies were determined by DV s. The RedGyrados can have any DV's, no the specific ones that make it a shiny. Plz confirm that youR answer is right in another comment.
Actually he/she is right. Shiny parents in gen 2 do have a higher chance to produce shiny Pokémon.
IK, that crannapper, but the ed Gyrads is a forced shiny. It does not have the gurateed stats of a shiny in gen 2
Octazooka actually that’s just the lore. Red Gyarados does have the guaranteed DVs of a shiny Pokémon

I know this bcuz I watch verlisify a lot and he showed an exploit to breed shiny magikarps a lot with the Gyarados and using a mimic glitch with Ditto for a free shiny Ditto using the gen 2 virtual console games. Very confusing though. :(