Why am I getting this error: No mapping specified for the following EntitySet/AssociationSet - Entity1?

This is because of the way EF4 works with model-first.

When you first create a model-first model, it's in a state that the SSDL does not exist. You can drag entities, associate them and so forth and yet, if you take a look at the SSDL on the EDMX file, you will see that none of the entities have an associated storage table in the SSDL.

That changes when you click the Generate Database From Model context menu item. The confusing part is that this action does more than simply generating a DDL script. In fact, it changes the EDMX file to include SSDL information. From this point on, the EDMX file will enter a state in which every entity in the designer/CSDL must map to an entity in the SSDL. If one does not map, it will trigger a compile time error:

No mapping specified for the following EntitySet/AssociationSet - (EntityName)

Another interesting fact is that it's not the kind of error that will prevent compilation. It will, indeed, generate the output class library. Shouldn't it be a warning or something?

To prevent this error, All you have to do after inserting a new entity is to Generate Database From Model again. That will update the SSDL and fix the mappings.

EDIT

If you are not using model-first and you "update from database", you will also have this error in the case you deleted a table in DB Server. This is because Entity Framework will not automatically delete the entity for you. Delete the entity manually and the error will go away.

I found I was getting the same error because I had forgot to create referential constraint after creating an association between two entities.

Error 3027: No mapping specified for the following EntitySet/AssociationSet ..." - Entity Framework headaches

If you are developing model with Entities Framework then you may run into this annoying error at times:

Error 3027: No mapping specified for the following EntitySet/AssociationSet [Entity or Association Name]

This may make no sense when everything looks fine on the EDM, but that's because this error has nothing to do with the EDM usually. What it should say is "regenerate your database files".

You see, Entities checks against the SSDL and MSL during build, so if you just changed your EDM but doesn't use Generate Database Model... then it complains that there's stuff missing in your sql scripts.

so, in short, the solution is: "Don't forget to Generate Database Model every time after you update your EDM if you are doing model first development. I hope your problem is solved".