If the bars in telemetry>suspension turn red it means that you've bottomed out. With the typical "leaderboard" setup, your fronts and outsides are probably in the red quite a bit during braking and in the first half of corners. It doesn't really matter though, Turn 10 seems to have forgotten to implement the consequences.
Personally I've not really noticed any serious impairment to having the two outer suspension sets bottoming out - although that rarely happens on my cars other than through bumps or on the Speedway in the higher classes as I usually have quite stiff ARBs. I also rarely manage to bottom out the rear suspension but I would imagine it would be an impairment to getting the car to "squat" properly under acceleration.
Where I have noticed issues though is when the front suspension bottoms out under braking, which seems to reduce the braking ability of the car (maybe it's part of the programming to attempt to stop ABS being dominant over no assists

). Then again, it could be that my braking is rubbish anyway, as anyone who's been rear-ended by me will know

Another weird thing with the assists came from running that R1 Audi R8. Even though I'm running with the suspension settings roughly half way along, that car still bottoms out like anything. You can't even blame the ride height as R1 is unadjustable. I'm guessing that this is just another Forza quirk.