If the error shows after you click "Upload" button, that means you don't have the correct watermark setting configured.

Login admin panel > site >configuration, please confirm the two options:
Watermark Type?:
"Image on uplaoded image" or "Transparent image on uplaoded image"
Watermark Stamp?:
This is the image file you want to print on the uploaded image and should be stored on the root directory of server.
Mainly, the error shows when the image file of "Watermark Stamp?" doesn't exist on your server.