Why does BetterDisplay warn that notifications are off when macOS says they are on?

The warning reflects the notification authorization and alert status macOS reports to BetterDisplay. That reported status can disagree with the visible System Settings switch. Some notifications may still arrive despite the warning.

Check System Settings > Notifications > BetterDisplay if you want system alerts. BetterDisplay uses notifications for occasional events such as update availability and configuration-protection activity. Ordinary display adjustments do not depend on receiving those alerts.

If notifications appear despite the warning, there is no need to reset display settings to remove it. If they do not appear, investigate notification delivery separately from brightness, scaling or DDC control. The message reports notification status. It does not change your license or display capabilities.