Time Machine could not back up the disk "Macintosh HD" because it is nearly full.
If you think the wording in that dialog could be improved upon you're not alone. The word "it" in that sentence (the object pronoun) refers to the object "Macintosh HD". It can't possibly refer to anything else, because Time Machine is not something that can become full... but you would need to be an expert in Apple-speak to fully comprehend that fact.
If it were to say "Macintosh HD" is nearly full then it would be abundantly clear what the problem is. If you were to somehow interpret that statement correctly despite the manner in which it was (poorly) written, then you would know how to fix it — which the next sentence is tries (and fails) to state:
Delete some files on "Macintosh HD" and try again.
🙂