[b]Can anyone tell me what are the steps i need to do after i restore the production database in test environment?
restore the excryption key and check the reports.
Can i override test encryption key with production encryption key?
you can restore encryption key
Is there any case where i need test encryption key?
yes , backup before you go for resore it with production keys, sometimes SSRS will stop functioning.
Is deploying reports through a project solution at once is better than restoring database and doing several step?
(considering that there will be more than 10 project files which goes to 10 different folders)
It is up to you , remember existing reports in test server will vanish along wiht your DB, so if you want then you can use RSScripter to download and upload in the same folder structure. you have to configure datasource and permissions manually.