As is true on all of Apple’s Wireless Basestation products, the blinking yellow light means “trouble! everything broken!”

Usually.

I just found out today, that if there is a new software update for the base station, it will blink yellow. I fixed this by opening the Air Port utility and flashing the firmware with the latest version. I’m not clear if the Time Capsule itself figured out it needed an update, or if one of the Macs connected to it told it that it needed one. Either way after the update, the yellow light is now a nice solid green.