How would I make something loop until something happened?
E.G

(global short test 0)

(script continuous test
(set test (+ test 1))
)

I want to repeat this until an AI encounter is dead. Is this possible?

If you mean just to continue setting "test" higher each tick until an AI encounter is dead, then yes. Just make an "if" statement check whether the encounter is dead before setting "test"'s value higher:

(global short test 0)

(script continuous test
	(if
		(> (ai_living_count "ai") 0)
		(set test (+ test 1))
	)
)