That is correct.
You have a good handle on the "code."
The reason that the Still Image needs Rendering (for ultimate playback, and hence the red line), is that PrE is basically "creating" Video from the Still Image.
The red line will also appear over your Imported Clips, when you add, or adjust and Effect, add any form of overlay, such as a Title, PiP, Transition, etc.
This ARTICLE goes into more detail.
Good luck, and happy editing,