Hi Caitlin,
Check to make sure that your shp file is a single, closed polygon.
In the Model Domain dialog, when you open the .shp file with the browse button [...] you will get a file selection dialog. This dialog has several tabs at the bottom. One of these is a map to display the shp file. If the map does not show a single closed polygon, then it will give you an error when you try to load it.
Regards,
Douglas