When you create a transition from clip A to clip B, it uses extra frames after the end of clip A and before the start of B to make that transition.
These extra frames are referred to as "handles". If, for example, you have all of clip A in the timeline, there are no extra frames to use, and you get this warning; If clip A lasts, say, 20 second but you only use the first 16 seconds, you have extra 4 seconds at the end.
Maybe a picture or two can help.
Here are clips A and B on the timeline:
The yellow line is an edit point, the place where you would place a transition from A to B.
If you double-click the edit point, you will see what is called the "precision editor" - it shows clips A and B with A above and B below.
It also shows that both clips have more frames that I am not using in my edit - these are the "handles".
Some of these frames will be used, for example, to cross dissolve from A to B:
See how frames from A *after the edit point* are being used in the transition? Without the handles, this can't be done.