I've only encountered this twice, but it is odd and seems inappropriate to the characters. This is a grey popup in the middle of the screen stating "Three's a crowd for romance. Do you want to dial it down?", with "X" and "OK" buttons. Having no idea to what this refers I always click the "X".

This first appeared some weeks ago for a settled, middle age couple and seemed completely irrelevant. It occurred again tonight with a relatively new character (two sim-years in game, still living in a starter home while saving money to move) who doesn't even have a romantic interest yet.

So, what is triggering this?

It basically just means that somewhere on the map, inactive sims were in a group and two of them autonomously flirted.
It's an EA oversight that this sends the player the prompt to decide if the group should be dissolved and become a date between the two sims instead, the same way it would if your active sims did so.