Sounds like you have a "sportshift" automatic transmission (this old version of sportshift kinda sucks though and isn't like the new ones). I had a 90 Prelude with it, and basically there's an S position on the shift lever and button labeled S3/4. when in S, the shift points are raised and you can hold 3rd gear until you press the button and it shifts to 4th.

The S3 light flashes in the same way as the check engine light would. the computer detected some sort of fault and is throwing a code. You'll have to find a factory service manual to troubleshoot it correctly (either check ebay or buy a new one from www.helminc.com)