The check engine and " arrow" warning lights came on my 1998 S70. The engine continues to run, but the car will not move. The manual says it is related to the automatic transmission. Any ideas what this could be?

Your tranny has detected a problem. If the car will not move, check the tranny fluid level with the engine running and in park.
Try turning the engine off and the key back to posII and rowing the shift lever from R to L about 20 times. Restart the car.
Try shifting from D to L and see if the car then moves.

If it fails to move at all and you don't have a code reader handy, be prepared for the worst.
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My name is Klaus and I am a Volvoholic.

I was able to get the car moving, but the check engine light is still on and the arrow still flashes. I checked the transmission fluid level and it is okay. I also moved the shift lever as you suggested. However, the lights are still on. I don't want to drive the car as I feel it may happen again. Any ideas?

Somehow, you need to get the codes read. Hopefully, it is only a solenoid at the tranny that has failed.
You could try disconnecting the battery for 10-15 minutes to clear all of the codes and restart the car. If the blinking lights come back on as soon as you shift out of P, a good scanner will be required to determine what is wrong.
It would be good if you have a Volvo indy shop not too far away. If the car is drivable in L or 3 and not too many traffic lights... just be prepared to have it towed.
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My name is Klaus and I am a Volvoholic.