I don't think this has anything to do with your Saturation block. The issue lies with the Product block. As the message says, you need to enable saturation on the Product block. This is so the HDL implementation and the Simulink implementation have the same semantics. This saturation is to the data type of the Product block's output port and not to any particular numeric range.
If you need additional saturation to the range [-1, 1], then the following Saturation block is the way to go. Alternatively, if you update your Product block to have an output data type of fixdt(1, n, n-1) for a suitable value of n, you can avoid the separate Saturation block. Due to 2's complement numbers, his will limit the range to [-1, 1); the most positive value will never be able to reach 1.