When you just give make, it makes the first rule in your makefile, i.e "all". You have specified that "all" depends on "hello", which depends on main.o, factorial.o and hello.o. So 'make' tries to see if those files are present.
If they are present, 'make' sees if their dependencies, e.g. main.o has a dependency main.c, have changed. If they have changed, make rebuilds them, else skips the rule. Similarly it recursively goes on building the files that have changed and finally runs the top most command, "all" in your case to give you a executable, 'hello' in your case.
If they are not present, make blindly builds everything under the rule.
Coming to your problem, it isn't an error but 'make' is saying that every dependency in your makefile is up to date and it doesn't need to make anything!