Red and yellow squiggly lines are probably sand. It's very unlikely you are digging into lava at this point in the game or you are horribly unlucky. You would know because everyone would be drowning and burning. Even if you can't identify the other symbols in the game, you should at least be able to recognize when stuff is burning, it flashes red and yellow and grey smoke comes off of it.
You can't smooth the floors or engrave sand walls. Dwarves don't like them very much. Dig down further to stone to make your rooms and save the sand for storing logs and stuff. Later you can turn it all that sand into glass which you can use to make stuff.