Helping people with computers... one answer at a time.
If Macromedia Flash is crashing or faulting, the best and possibly the safest thing to do is to simply reinstall it.
I repeatedly get a popup message telling me that Macromedia Flash has stopped a potentially unsafe operation which instructs me to click on a displayed "Settings" button. First, is this legitimate? And second, how do I stop it? I have tried clicking on "Settings," but nothing happens, and the message keeps popping up.
It really depends on what you're doing at the time. You didn't say, but I'll assume you're actually using your web browser when this pops up.
I don't know if you'd consider this good news or bad, but the message is probably legitimate.
Naturally, if you are concerned about viruses or spyware (as you rightfully should be), then make sure you're following all the appropriate steps to keep your computer safe.
My first reaction to the scenario was to recommend reinstalling Macromedia Flash. Flash is a technology that lets you view videos and animations on web sites, and can be downloaded and installed from Adobe's Macromedia Flash Player Download Center.
However looking into the problem a little further, I found a few traces of people experiencing this very problem after upgrading Flash, so re-downloading it may, or may not, actually help.
In fact, there's an Adobe Knowledgebase article on the topic: Security changes in Flash Player 8.
Linked from there is a TechNote: How do I let local Flash content communicate with the Internet? that details the steps you probably need to take to avoid this message in the future.
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