At the bottom right of the screen, there is a red or yellow alien icon for each alien that the currently selected soldier can see. Occasionally, when a sniper is selected, some of these icons have a yellow reticle on top of them.
What does this mean?
It means that the alien would normally be outside of the sight range and thus not a valid target, but the sniper can shoot at it because of the Squadsight skill.
It's the skill which allows a sniper to fire on targets which are outside of its view range when another soldier can see it. Note that you still need an unobstructed line-of-fire for this to work.
Both are correct.
yellow reticle is for sniper Squadsight skill
Yellow head means flanked and red means target is in cover.
