In Digi Modes ALC in Yellow?

Excellent questions. I keep mine out of the red at all times! Even the tiny slot/dash in the SDR ALC scale is out of the red. I adjust mine using DAX.

That is correct, backing off the audio drive will lower output power, while also reducing distortion and splatter. 

There are several points in the audio chain that can control TX audio level;

1.  Windows PC audio output level:
     https://www.youtube.com/watch?v=ko1A1qcqWWQ
     at about 3 minutes into the video, how to set output level for a specific audio channel.

2.  FLdigi Transmit Attenuator setting;
     Bottom of this page;  http://www.w1hkj.com/FldigiHelp/audio_adjust_page.html

3.  If using WSJT-X for FT-8, the PWR output slider on the right hand side of the
     program user interface screen.

Please understand that properly adjusted TX audio for a clean signal WILL result
in reduction of transmit power level, but also will avoid distortion, clipping, and
splatter across the radio band.

NOTE:  Modes like JT65 and FT8 are not sensitive to small amount of ALC action,
             but with phase sensitive modes like PSK, you should not let ANY ALC show
             on the meter.   [I have done extensive lab testing with JT & FT8 modes using
             a spectrum analyzer, as well as on the air coordinated testing, and moderate
             ALC on the rig meter does nothing to JT or FT8 modes.  You can't say the same
             for PSK modes, avoid ALC with PSK modes.]

Cheers

Hi Paul:

Yes.   To affect your ALC meter setting (and audio gain/drive), you can adjust ANY  point in
the audio output path between WSJT-X and the physical radio.  This includes the audio level
slider on WSJT-X (right side of window), the MS Windows Audio Playback Level slider, the
Flex DAX TX gain slider, all of them are effectively in series.  Any one, or all, will control your
audio drive level.

Cheers,

Neal