By dragging cell D1 to D3, you're replacing D3. The original reference
to D3 in the formula in E3 cannot be resolved, as you've replaced it
with another cell. You will also notice that the formula in E1 would
refer to cell D3, as that is where you have moved cell D1. "#REF!"
means "reference error."

If you want to drag the contents of one cell to another without
triggering the error, hold down the Control key (CTRL) as you drag.
This makes a copy of the cell's contents rather than moving the cell.
You can also Copy the cell and Paste into the cell you want to copy the
text into.