Afraid I have no real idea how it works, it seems to often have a mind of its own and I long since removed it from my screensets so I am not troubled with it flashing away at me 
Hood
1) I found the following link here in this forum that explains monitoring:
http://www.machsupport.com/forum/index.php/topic,9089.msg56190.html#msg56190A new condition monitor has been placed on the main screen. It will not
activate any monitoring until set.
To set your "abnormal condition" monitor. You need to have your machine in the
state you consider most normal. This is in terms of the status of various things
like "are the axis homed?", "Is the unit OffLine or online?", "is it set to mm's
or inches?"," Is IJ Mode incremntal or abs"...etc..
(Excerpt only)2) messages "IJ Mode is Incremental", "Exact Mode vs. CV mode" are quite clear.
3) Message "Axis not Refed" is more troublesome. Refed means, by retroinspection, "Homed", or "Home-referenced", that is the home position is known. My english is unsure.
Running into a limit switch looses the "Refed" or Referenced property. Mach3 doesn't even care that the position is at the wrong end of the Z range. It sees the switch not during the Reference operation and cancels the
well-positioning state.
4) actually most askers with "Abnormal condition" in this forum did tell a problem. As we do have. Next step in the drama is: the "Abnormal Condition" LED attracts attention and masks the real problem. Therefore the operator just reports "Abnormal condition", and does not think about his faulty G-Code program.
I'm quite sure that our operator ran into the lower Z soft limit, therefore disabled soft limit to FIX it, ran into the lower Z switch, lowered the Z soft limit to FIX this, and still tried to mill below ground zero.

. Now I (the IT man) do have to repair the Abnormal Condition, and the operator does not have to repair its faulty milling.
Peter.