This is a confusing error for users and form authors alike, especially since the add-in help does not have a glossary entry for "filter scope". I fear I came up with the error text, so I apologize. So to hopefully rectify this situation, we have this post. (Plus technically its not an error, it's a warning. But that's okay, everybody calls it an error.)
Authoring filters is distinct from authoring rows or columns, in that you both "Select Members" for them and you "Select Default Filter Value". Select members corresponds to the scope. And the default filter value is the initial filter selection that you see when opening a report. When filters are added via the action pane, by default the scope is is empty. And empty scopes are interpreted by the add-in as the entire hierarchy. If you cancel when prompted to select a value for the filter and then go to select members for the filter you can see this. Authoring via the Report Wizard is a little bit different, but in SP1 will be more consistent.
So now hopefully the message makes sense conceptually, but how does the matrix or filter get into this state? When a matrix returns no data grid, the add-in runs an extra query to make sure the filters are not set incorrectly. Especially as authors get used to the PPS Planning security model and assignments it can take a while to understand how to generate a form with a filter scope that is meaningful to end users with more restrictive permissions. So when the result of the extra query says that the list of members resulting by using the users permissions for the filter scope does not contain the filter selection then this error/warning is presented. i.e. with the users permissions the selection is outside the filter scope. All this is meant to do is explain why no data is returned, so its just a warning if a matrix can't render. But generally users aren't happy when no data is returned so for all intents and purposes people treat this as an absolute error condition.
It just means that the user needs to update the filter selection to a new value (although frequently if the form is authored incorrectly, there won't be useful things in the scope). And if the scope is completely empty then the add-in should show the entire hierarchy as the available members but the whole point of the scope is to reduce the choices end users have to make, so even this may still be confusing. (Unless of course the user has no permissions in the dimension in which case they can't pick a member and the whole situation is even more confusing for them)
So hopefully this resolves not just some of the confusion around this message but also helps to understand filters, selections and scopes.
Playing in the land of Peter Eb. while writing this post...You Lied by Green Day from