Hi there, I was wondering the same thing, what happens when TM has used 'too much' space so that SD can't run a backup. I'm buying a new external drive for my iMac, but I don't want to buy 2 drives at this point if I don't have to (1 for TM, 1 for SD).
I've finally found straight forward instructions for deleting old TM backups. Thankfully, crawling around in Finder and/or Terminal is not necessary.
Instructions are here, and also
re-explained here.
As I understand it, just navigate in TM to your oldest backup date, then click the "Action" menu (the cog wheel thingy), and you can select "Delete Backup", which should delete the backup from that date. You can also highlight a file and select "Delete From All Backups", or something like that. But I think I prefer the first option.
I'm hoping that this action will then allow SD enough space to complete. Once I get my new drive, I'll find out for sure I guess. Might have to do it a couple times to free up enough space depending on what gets deleted from TM.
Anyway, hope this helps!