It's either you parking troop transports in close range of their planets, or having a ridiculous amount of influence bases near their planets.

I usually see it when I am researching along the Tech Victory path. Only a few races show it, however. It does also show up sometimes during a push for an Influence Victory. It may have more to do with how many planets of a race are affected by your influence, or whether and how long their capital is affected. Also, if you max out an influence starbase within a few turns, the sudden rise in your influence will tend to aggravate your neighbours.

To be honest, apart from Tech Victories, I see this so rarely I could not really say where it comes from. I've always found the unexplained diplomatic terms to be a bit annoying.

I have seen this when I have transports parked even as far away from the AI sphere of influence as 15 parsecs. I've also specifically been told to remove ships and then been declared war on because of ships again at least 15 parsec's away.

This may have to do with how massive the ships/fleets in question are. I usually place stacks of multiple fleets that can easily include a couple hundred attack ships and another couple hundred transports. It does seem to make a difference over parking a fleet or two within a few parsecs.

The other issue is when the Zones of Control (ZOC) may not be recalculated after the load of a save game for quite some time. I've had war declared on me because of ships being too close when if the sphere of influence had been recalculated, my ships were no where near the AI. This was specifically with v1.31 and may have been corrected in later revs.

It's basically when the AI thinks it's worked out your current tactics.

I've seen it happen when:
1) I've been attempting to culture flip planets.
2) I've been researching for a tech victory (and not just the final tech either).
3) When bringing ships too close to enemy planets (although, by the time I'm doing this, I don't care what the AI thinks).
4) Other inexplicable moments.

The last one of these used to annoy me at times. It even happened when I didn't know what I was doing - damn shame the AI couldn't tell me what it thought I was doing so at least I'd know. However, I thought about it and, if was I playing against humans, they could just as easily misguess my tactical plans.

the ai says that it knows what you are doing and if it had a higher intellegence it would be able to do something about it

It is not the same. Besides that popup message, there is a relation modifier on the foreign policy screen that simply says 'We know what you're doing".

Have you defeated another race or two recently? I usually get this message when I go on a mission of conquest,albeit short. Let things calm down for awhile, and it will be as if it had never happened.

There is at least one cause that no one has mentioned and is probably what is setting this off for FC.

The AI reacts not only to you being close to his planets, but to you being close to his star bases...Even if he built a star base in your territory or it's in territory you took from the AI.

I.E. If he builds a base deep in your territory and you have ships not in planetary orbit near the star base, this will trigger this message in just the same fashion as if you were parking ships next to the AI's planet. This includes the economic star bases the AI seems to love to build in my territory.

The developers originally put this in to prevent people from staging strikes against galactic resources (it was in a change log and thread discussion a long time ago), but it causes lots of false positives on the "we know what you are doing" message.

I'd also appreciate a bit more info about the Why stuff behind many game elements like "We know what you're doing" on the Diplo page.

Something about my griping elsewhere on the DA espionage system makes me think there could be a good long-term solution in a new set of summary reports that might include things like "You have a -1 for Militaristic because the Korx believe that your fleets are weak (or badly positioned, whatever)."

In my last DL games, I just read this warning to mean that the particular AI was getting scared of me. I never bothered trying to figure out why b/c I had a list kind of like 7th Circle's and item 4 is a killer. But I did take the warning as cause to prepare for an attack, coddle the AI, or both.