How come when I try to select a playlist it says Playlist 1, 2, 3?

I think you need to enable the VoiceOver feature. Then, instead of the numbered names, VoiceOver should say the actual playlist names.

This document has information about enabling VoiceOver on 3rd gen shuffle

http://support.apple.com/kb/HT3475

You can also refer to this more recent document for enabling and using VoiceOver on 4th gen shuffle

http://support.apple.com/kb/ht4322

I believe it is similar (or the same) as 3rd gen shuffle, and this document has more useful info.