Why does this only generate one frame?

It only generates one frame because the frame is instantiated before the loop. In your snippet, the loop only updates the position of the already created frame.

The following would only change the Name property of part x to the corresponding value or i. . while simply moving the first line into the for-loop would create multiple parts with different names.

-- [1]
x = instance.new("Part")

for i = 1, 20 do
	x.Name = i
end

-- [2]
for i = 1, 20 do
	x = instance.new("Part")
	x.Name = i
end

In your case, you want to do something similar to the second example.

frame = workspace.part.SurfaceGui.Frame

for i = 1, 20 do
    for u = 1, 20 do
	tile = Instance.new("Frame")
	tile.BorderSizePixel = 1
	tile.Size = UDim2.new(.05, 0, .05, 0)
        tile.Parent = frame
        tile.Position = tile.Position + UDim2.new(0.05, 0, 0, 0)
    end
    tile.Position = tile.Position + UDim2.new(0, 0, 0.05, 0)    
end