The warning is there to warn you that the quality of the printed image will probably not be good enough. You can set the limit for the warning yourself (in the preferences).
As been said, the DPI of the image depends on the number of pixels and the physical (printed) size.
An image that is 300x300 pixels and printed as 1x1" will be printed at 300 DPI. If you make the image bigger to make it 2x2" it will become 150 DPI. Simple math.
So, the only way to make the DPI larger is to make the image smaller or get an image with more pixels.
It IS possible to use an image editor and increase the resolution, but it will not add information to the image so the quality will still be the same.
Now, the X is most likely not at all related to this. What format is the image? JPEG? PNG? GIF?