Any hammer/engine based materials (usually a solid color with white or black text, such as the yellow and black NODRAW texture) cannot be placed on displacements. You can only use those types of materials on flat blocks (or brushes, as others may call them). Sloped surfaces are fine but it cannot be a displacement, as doing so will make it not work and just render as a normal texture.
Displacements are when you edit a face of a block as individual points (vertex/vertices) based on how many times you subdivded the face. Note that this doesnt mean you cant use Vertex Mode on a block, that will work just fine. Just dont try to make a displacement out of it or the engjne materials dont work.