How can I create Rules condition for event when 404 error generated?
Navigate to this path admin/config/system/site-information, which will look like www.example.com/admin/config/system/site-information.

Enter the page URL(your page for 404) in the 'Default 404 (not found) page', where you want to navigate your user when 404 happens.

Note - I don't think you can detect 404 from rules. May be somebody can answer about that but not me. Though I have experience with rules but never seen this kind of thing.