I found that having the HMD and controller in view of all sensors isn't always enough to get past this point in the setup. I finally figured out that if I also wiggle the controller back and forth about 90 degrees while holding at eye level and squeezing the trigger, it works every time.
"I'm not crazy about reality, but it's still the only place to get a decent meal." -Groucho Marx
This is during the setup of sensors, when you have to hold the controller at eye level and squeeze the trigger?
I have had issues with this step, and they always resolve by me moving the sensors so they can more clearly see the controller. Even if all 3 of my sensors should technically see the controller I'm holding during this, I would have to re-adjust the sensors so they point closer to the exact position that I'm holding the controller.
I also ran into this issue when my rear sensor was too far away from the center of my playspace, and thus it couldn't clearly track the controller during this step of setup. (The rear sensor was about 7-8 ft from the center of my playspace, thus 7-8 ft away from the controller when I squeezed it and gave me this error).