A shocking generalisation, but in cars, tractors, etc there are two types of starter drive: Those that rely on the motor rotation to throw the drive pinion into the starter ring and those that use the starter solenoid to physically move the pinion into engagement. The latter 'pre-engaged' starter solenoid only closes the motor contacts when the pinion has moved far enough to engage the ring gear. Both types have the 'Bendix' gear (a spring loaded reverse spiral) to throw the pinion out of engagement when the engine starts.
Pre-engaged starters can easily stick in the engaged position and in that event only the Bendix prevents over-running. The motor continues to receive power even when the key is released and major damage is inevitable because it's not continuously rated. I've always assumed the typical Lycoming starter is of this type and that the warning light indicates the position of the solenoid lever that pushes the pinion into engagement.
Could someone who knows better than I confirm please?
Bendix drives can also stick , but I doubt that any pilot would fail to notice this condition for long due to the noise, burning smell, engine disintegration etc. Engaged starters and sticking Bendixes continue in contact with the ring gear and this accounts for the worn away starter rings often seen in classic cars. Owners of these vehicles must be semi-deaf, if not before, then afterwards.