Here is an example of submitted code that produced this error:

function EncryptedDataKeys(edks: Msg.EncryptedDataKeys):  (ret: seq<uint8>)
  requires edks.Valid()
    UInt16ToSeq(|edks.entries| as uint16) + FoldLeft(FoldEncryptedDataKey, [], edks.entries)

function FoldEncryptedDataKey(acc: seq<uint8>, edk: Materials.EncryptedDataKey): (ret: seq<uint8>)
  requires edk.Valid()
    acc + edk.providerID + edk.providerInfo + edk.ciphertext

The general cause of this error is supplying some value to a situation where (a) the type of the target (declared variable, formal argument) is a subset type and (b) Dafny cannot prove that the value falls within the predicate for the subset type. In this example code, uint8 is likely a subset type and could be at fault here. But more likely and less obvious is supplying FoldEncryptedDataKey as the actual argument to FoldLeft.

The signature of FoldLeft is function {:opaque} FoldLeft<A,T>(f: (A, T) -> A, init: A, s: seq<T>): A. Note that the type of the function uses a -> arrow, namely a total, heap-independent function (no requires or reads clause). But FoldEncryptedDataKey does have a requires clause. Since -> functions are a subset type of partial, heap-dependent ~> functions, the error message complains about the subset type constraints not being satisfied.

These various arrow types are described in the release notes when they were first added to the language. They are also documented in the reference manual.