Passing N1 doesn’t necessarily mean you’re fluent but it’s very likely that a person who passed N1 is very good at japanese. Standardized tests will never be a perfect measure of your japanese capability but they’re not completely misleading. You should be able to read the newspaper, converse about pretty much anything and be able to work for japanese companies. Japanese firms often only require JLPT N2 for them to consider you good enough.
Also, how we define fluency can be tricky, some say it must be near the level of a native speaker which I think is a silly definition. Fluent doesn’t mean native level. There lots of gaijins who passed N2 that would probably pass for fluent.
Have you ever heard the claims that even japanese people can’t pass N1? Well that’s utter bullshit. I believed this too until I actually bothered to google it and dig deeper. Apparently, your average japanese high school should be able to pass N1 with flying colors. I was still skeptical when I read this and showed a couple of sample questions from N1 to my japanese friends and yes they did ace it easily however there was one question that even gave the natives trouble. So I don’t think japanese people can score perfect with no trouble unless they’re a japanese teacher but they definitely won’t struggle to pass it.
So how on earth did this rumour get started? Japanese humbleness. One of the major misunderstandings foreigners have when miscommunicating with japanese. Japanese people aren’t fond of bragging and even though saying you can passs language proficiency test in your mother’s tongue isn’t exactly bragging they’re still humble about their capabilities. I imagine when you ask japanese person “can you pass this test?” they will say it’s difficult but if you actually show them a sample question they will know the answer. Foreigners misunderstanding their humbleness leads them to spread the fake rumour “even japanese people can’t pass N1”.