1) The indicator measures a theoretical coverage - i.e. the maximum number of people who can be reached by the early warning system. In order to measure the actual coverage (i.e. how many people were actually reached), you would have to conduct a quantitative representative survey among its intended beneficiaries after the system was used.
2) During the project implementation, encourage communities to carry out a simulation exercise. This will help identify any problems with inclusion and can be used to measure coverage more accurately.
3) ECHO phrases this indicator slightly differently, as "number of people covered by a functional early warning system".