This is a brief answer, as am on my phone, but will post more when at my DAW.

Think of them as indicators of possible clipping. Some plugs produce desirable sounds when driven hard, others not, much like analogue gear.

The indicator shows a potential to clip. I find gain staging within th PC vital, as it can make a huge difference to a mix - so much so, that I have a particular screenset that shows only th PC module in th console view docked at the top of the screen to keep an eye on it.

Invariably if I see it light red a lot, the track is improved by gain staging. I run through each of the modules looking for the one that lights red. Sometimes it is a combination of several.

sven450
This has come up before, and if I'm remembering correctly, they are not actually clipping levels, but more like "activity levels" or "overload levels" or something. 

It has come up before, and some intrepid forum member did some really good objective measurements of it. But I can't remember who it was. I hope someone fishes out the link, it was good stuff.

Maarkr
i guess I've never noticed clipping when it goes in the red... I mean, when I hear clipping I really hear that horrid  h@kkccggg sound (my alphabetization of clipping noise, ain't it appropriate?).  I think of it like gain staging, where the same thing occurs on a track or two that you get the red peak light on.  I'll listen to it solo to check for noise or adjust some parameter related to the track, but if it sounds good like it is, I leave it... no big thang.

Since maybe because I use headphones almost exclusively (and I think mayhaps my ears are a little more sensitive to minor things than others... which I wish would translate into better mixes, lol) I notice it more.
 
It's not an obvious type of clipping (most of the time). Just a general overall harshness. Like it's super fast little micro "clips". Not necessarily like something being overdriven in a desirable way. Just harsh and abrasive to my ears and it seems to step on other sounds. Anytime it happens if I fix the gain staging it's pretty much guaranteed to sound better.
 
That said... when those indicators are orange (as in just about to clip) that can be desirable on effects that like to be overdriven a bit. If slightly knocking into the red at the ocassional peak seems okay. If there is more red than anything else... nope.
 
Conversely if it's always green I don't think that's desirable either. Like whatever I'm using isn't getting enough juice to really make the effect do what I want it to.
 
Of course it's different for different plugs but these are things I've noticed in my own projects over time.
 
I could of course be completely hallucinating the entire phenomena.

 
I've been 'apprenticing' under Jeff Evans (meaning I savour his posts).  Jeff's a fan of the K-System and I find it makes so much sense.  Using Klanghelm VU meters everywhere, I just mixed a 'pop' song keeping things around -20db VU at each stage, maybe -18 during the chorus.  Even with a fair amount of final stage limiting on my master bus, the song outputs at around -12db VU, hitting maybe -3 db peak on the loudest snare hits.
 
I'm speaking in general terms since this is the first song I've mixed and though I'm pretty happy with it (especially considering the poor quality of the recordings I was working with) it's undoubtedly at the bottom of the amateur level.  I'm just playing around.
 
All that to say my track and bus meters come nowhere close to going in the red and there's lots of dynamics.
 

Many of the PC modules are entirely superfluous if you are pursuing "the closest approach to the original sound" (as the Acoustical Manufacturing Company used to describe what others called less poetically HiFi, in an era when the phrase "analogue warmth" would have been entirely baffling). I only use these PC modules when I want more distortion. But it kind of intrigues me that when, say, using the Console Emulators, the clipping LED will be showing a lot of red even when the console "needle" is only straying into the red. I don't think my quality of life will be transformed by knowing what the Bakers were intending, but it would give me a small degree of satisfaction.
 
Noel - now is the moment for you to weigh in with one of your pithy and succinct reveals.

John T

sven450
This has come up before, and if I'm remembering correctly, they are not actually clipping levels, but more like "activity levels" or "overload levels" or something. 

It has come up before, and some intrepid forum member did some really good objective measurements of it. But I can't remember who it was. I hope someone fishes out the link, it was good stuff.

Was it me? --> http://forum.cakewalk.com/FindPost/2880052

I think this is the best take away from the linked thread (from John)
 
This is the way I look at them as an indicator as to how hard you are driving the virtual circuit.
 
They are not digital clipping indicators (you have those on the meters) but more along the lines of an analog clipping meter. Keep in mind that Pro Channel's modules are modeling analog circuits. I do see them as useful when you look at them from this viewpoint.
 
I should have posted this sometime ago but I forgot this thread.