Not targeting the latest versions of Android

This lint message is telling you that compatibility mode will be automatically applied to any features you may have used that are not available in later versions than your declared targetSdkVersion of 16 (and, it is also telling you that there are such later versions - e.g., 17).

These automatic compatibility mode adjustments may not be as ideal as what you could accomplish yourself by using whatever features were added in later (than level 16) versions to replace the functionality of the level 16 ones that you may have used, which have been removed in later versions (if any). But everything should still continue to work in later versions (due to the adjustments made by the compatibility code that is automatically applied for running on versions higher than your declared targetSdkVersion's API level); it just may not work as well as your own custom detection of, and use of, the new features (when your app detects that it is running in the later versions that have those features) would have worked.

Here is a discussion, with examples, of minSdkLevel vs. targetSdkLevel:

Android Min SDK Version vs. Target SDK Version

Another thing you will want to consider is the relationship of the Project Build Target (the level of the SDK used to compile your app) to the targetSdkLevel:

Difference between "Build Target SDK" in Eclipse and android:targetSdkVersion in AndroidManifest.xml?

You should not use android:maxSdkVersion="17" because it means that if someone using your app updates its android OS to a version greater than 17, your app will be removed.

It says this because of targetSdkVersion="16". API 16 is Jellybean 4.1 and 4.1.1, while Jellybean 4.2 is API 17.

Try using:

<uses-sdk
        android:minSdkVersion="8"
        android:targetSdkVersion="17" />

Also, keep in mind that this is a Lint warning. These warning exist to help you better your code and make it easy to maintain, while being compatible with the latest Android changes. Ignoring this will not cause you any immediate problems.

EDIT: With Android 4.3, the latest SDK version is now 18, so you should use:

...
        android:targetSdkVersion="18" />

EDIT 2: With Android 4.4, the latest SDK version is now 19, so you should use:

...
        android:targetSdkVersion="19" />

EDIT 3: With Android L, you must use the following values, as described here:

compileSdkVersion="android-L"
minSdkVersion="L"
targetSdkVersion="L"

EDIT 4: With Android L's public release, you must use 21 instead:

...
        android:targetSdkVersion="21" />

20 was used for 4.4W, or for Android Wear.

EDIT 5: With Android M's public release, you must use 23 instead:

...
        android:targetSdkVersion="23" />

In the future please consult the official Android documentation to keep yourself up-to-date with the latest Android API Levels.