This means that the URL in question has at least one outgoing hreflang annotation which is canonicalized to another URL.
Why is this important?
Search engines interpret Hreflang tags as indexing instructions. An English page that has hreflang pointing at its French alternate is instructing search engines to index both the English version and the French version, and to consider each as equivalent in their respective languages.
If this French page was canonicalized to another URL (for argument's sake, we'll call it a Canadian page) then this would be an instruction to not index the French page, and to instead index the Canadian page.
So the hreflang is saying 'please index the French page', and the canonical is saying 'don't index the French page.' This type of conflicting instruction serves to confuse search engines, to the point where they will ignore the canonical and/or hreflang, and make up their own mind about which are the right URLs to index.
What does the Optimization check?
This Optimization will trigger for any URL which contains hreflang annotations, where at least one of the hreflang URLs is canonicalized.
Note: This Optimization is very similar to another Optimization: Canonicalized URL has incoming hreflang. The difference being that this Optimization is analyzing the page with hreflang on (i.e. outgoing hreflang) whereas the other Optimization is analyzing the target page of a hreflang annotation (i.e. incoming hreflang).
Examples that trigger this Optimization:
Consider the URL: https://example.com/page-a/
The Optimization would trigger for this URL if it included an hreflang annotation:
<link rel="alternate" href="https://example.com/us/page-a/" hreflang="en-us" />
where this hreflang page had a canonical tag that is not self-referential:
<link rel="canonical" href="https://example.com/us/page-b/" />
How do you resolve this issue?
The problem with this sort of conflicting instruction is that it is not instantly obvious which page is causing the error. Either the hreflang is wrong or the canonical is wrong. This is what will cause search engines to guess, and they may not guess correctly.
The best solution is take the situation into your own hands, so that they do not need to guess. And this starts with determining which is the correct hreflang URL, which may require careful examination.
Once you have pinpointed this, the course of action should be clear:
If the hreflang URL is accurate, then the canonical is mistaken, and should be altered to be self-referential.
If the hreflang URL is erroneous, then the outgoing hreflang annotations must be adjusted to point to the proper URL.