Shake reduction requires clip dimension to match project setting. create a new project.

It means the project settings need to be the same as the clip.

But if you have a non-standard resolution clip, it's a no-go.

What version of Premiere Elements are you using and how are you setting up the project?  Where is the video coming from and what are its specifications?  Basically, if you are shooting a 1080p video, the project needs to match at 1080p.