Paragraph separation error, mixing first line indent with paragraph return on blank line – You’re using multiple, incompatible paragraph separation methods. Please see Step 7a in the Style Guide. If you want to use first line paragraph indents, then remove the paragraph returns you have on blank lines that separate your paragraphs in the body of your book. Or, if you want to use the block method, then remove the first line indents. Step 7a in the Style Guide will help you choose the best method for your purposes. For most fiction, most authors and readers prefer the first line paragraph indent (just a print book). Block style is more common in non-fiction.
Somewhere in your file, you have a paragraph (or more than one paragraph) that not only has the usual first line indent (i.e. ‘Tab’), but it has a trailing after space/return space separating it from the next paragraph. So it has an indent and a space between it and the next paragraph. This is against Smashwords’ guidelines.
Don’t always assume the techs who check the files know what they’re doing either. I’ve gotten errors like this before on scenebreaks where I didn’t separate them using an asterisk. If you’re absolutely certain your file does not have these illegal little spaces plus indents, then email Smashwords and ask them for further information.