Why does the Google Chrome icon appear like this in Applications?

I am using OS X Lion 10.7.4.

The Google Chrome application seems to work fine and the icon appears normal the Dock and Launchpad. What does this error icon mean?

I have not seen this happen and it is quite uncommon, but usually it means that the app hasn't fully loaded the icon from the dmg file to the memory. It could've been because you moved the app over very quickly or you must not have followed the standard procedure, which is Download app → Drag icon to Applications folder.

Either way, it should fix itself on a reboot. If you don't want to do that, there's an answer on Super User to the same question:

Drag the app to your desktop first, and wait for it to finish loading from the .dmg file. It will get its proper icon. Then drag it to the Applications folder, or on the alias in the .dmg, if one is supplied.