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Yes, it sounds like what you've done is unchecked the "automatically sync new apps" box (or whatever the exact wording is) under the apps tab. When it sees a new app on your device that isn't checked in the check-box in the apps section, it asks if you really want to delete it. (One reason you'd have an app on your device without it being selected to sync is because you downloaded it on your device after doing so on a different device.) If you don't want to auto-update all your apps, just check that one in the list for the device (again, in the apps tab) and then it will sync without error.
When you tell it not to remove the app, it's simply canceling the sync altogether.
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