Hello vadrevu,
this error means that you should compile the library first to create the .elf file.
Always is needed to compile the libraries first and then the project.
You can import your project with all needed libraries by this way:
- File -> Import
- Import Existing project sets under Project of Projects

- select browse, for example C:\Freescale\KSDK_1.2.0\examples\frdmk64f\demo_apps\hello_world\kds and select the .wsd file

After this, debug the library first and then the project

The .elf file will be created under debug configurations

I hope this solved your issue.
Best Regards,
Iva