If a design contains a sequence of references that refer back to itself, it is considered a circular reference. For example, if design A contains design B, which contains design C, which contains design A, the reference sequence A > B > C > A is a circular reference.
If you try to insert a design into an assembly, or replace a component in an assembly, that would create a circular reference, Fusion detects it and prevents you from completing the action that would create a circular reference.
If Undo or Redo in any open designs would cause a circular reference, Fusion also detects this and prevents you from inserting or replacing the component. In this case, you may be able to save, close, and reopen the designs to clear the undo history.