[Note: edited 7 Jun 2012, 13 Aug 2012 to make changes based on comments that have been received]
The generic memory error icon was added in Flash Player version 10.1 and will appear within a browser when the Flash Player has been particularly abused or is running in a very low memory environment. The icon, affectionately known as the Gray Circle of Death (GCOD), is a gray circle with a white exclamation mark within it.
It is not just an icon, however. It is a sign that Flash is protecting your computer from an application that is asking for more memory than your browser has available. The browser will crash if it runs out of memory and that is a Very Bad Thing. If that happens your browser may crash or your computer may crash and need a restart. Flash now has the feature in which it shuts down an application if that application causes a memory problem.
Note: One recurring comment to this post is that one application or another created in Flash often triggers this icon to appear. “Why don’t you fix Flash?” The answer to that question is that Flash is doing exactly what it is supposed to do. It is protecting your computer.
It is possible in Flash, as with most programming languages, to create create an application that doesn’t play nice.
The Flash Player tries to shield the user from either intentional or unintentional mischief that an application can create. The GCOD is shown when Flash has stepped in and kept an application running in the Flash Player from using more memory than is available. The Flash Player stops execution of an application and displays the GCOD when an application requires more memory to continue running than is available.
It is important to point out that the Flash Player has not overrun its available memory. If it had Very Bad Things would have occurred. What did happen is that Flash Player yanked the leash of an application and shut it down when it needed more memory than the browser had available.
For that reason, the GCOD is a very good feature of the Flash Player.
Getting Rid of the GCOD
Most important to most people is not what the GCOD is, but how to make it go away. In all cases, an application does not have enough memory to run. The application could be needing a reasonable amount of memory but the browser does not have that much memory available. On the other hand, the application could also go into a death spiral because of a programming error and suck up every bit of memory available in even the heftiest computers. There are many ways for an application to overrun its memory.
When the GCOD is seen, the first course of action is to contact the developer of the Flash application. I have a decent computer and I have only seen the GCOD appear because of the coding of the application. The GCOD is not a problem Flash Player causes. You see it when the safety valve has blown.
Flash Player 11 Technical Specifications
Garbage collection internals for Flash Player and Adobe AIR
Optimizing Performance for the Adobe Flash Platform