What does the red seal mean on 2 and 5 dollar bills?

A red seal on a US bill dated 1928 or later indicates it was issued as a United States Note, a now-discontinued form of paper money.

US Notes were issued directly by the Federal Government. They were introduced in 1862 during the Civil War. When the Federal Reserve System was created in 1913 as the nation's central bank it began to assume responsibility for issuing the nation's paper money. However up till the 1960s the government remained legally required to produce a specific fraction of all paper money as US Notes.

The two currencies were in fact completely interchangeable - both were backed by the faith and credit of the US, the bills themselves had essentially identical designs, and were printed by the same Treasury facilities. In the mid-1960s the minimum production requirement for US Notes was eliminated as a cost-saving move. The last general-issue US Notes were Series 1963-A $2 and Series 1963 $5 bills, although some Series 1966-A $100 US Notes were issued as late as 1971. Since then all US bills have been familiar green-seal Federal Reserve Notes.