The primary indication for fetal blood transfusion is to treat severe fetal anemia, often caused by Hemolytic Disease of the Fetus and Newborn (HDFN). This condition occurs when the mother's antibodies attack the fetal red blood cells, leading to hemolysis and anemia. Other causes include parvovirus B19 infection, which can lead to severe anemia in the fetus, and certain genetic conditions like thalassemia.