Hi and welcome to JustAnswer,Thank you for the question and your patience. Should you still need assistance for information purposes only...Initially, the described symptom almost always point to an internal hardware issue or more particularly, a hard drive issue. The camera is asking you to format the HDD in the hope of working out any glitch in the HDD. However, in doing so, all the contents would be deleted.
Consider / try a hopeful workaround:
This is very critical - the above RESET however would not be corrective of an internal hardware concern/HDD problems; but it would be confirmed. In some instances, it may even expose other issues.
Yes please, press the RESET button using a dull pointed object and turn the camcorder on. Pressing on the RESET is both a test and a try of a fix. As it implies, a reset would force the unit to revert back to factory defaults removing glitches and config errors but would include memories, presets and user preferences. After a reset, the initial setup would have to be performed.
Unfortunately, if the RESET button was not corrective, then the internal hardware issue with the HDD is confirmed. Repairs would be needed and the contents of the HDD can not be readily recovered.
The red dot is the recording indicator. If attempting to record and the Sony DCR-SR68 is unable to record on the HDD, the camera then informs the user of a fault and the (hopeful) corrective action of formatting.