The ignition lock on 1997 Prizm is very warm. What does this indicate?

Possibly nothing. If you're common sense tells you to still be concerned, remove the ignition switch and check for pitting or burns. Be sure and disconnect the negative battery cable first. It's a relatively easy job.

Most likely it's the key interlock solenoid attached to the ignition cylinder and housing.
It's an electrical coil and does get pretty warm. If there's a fault with it, you won't be able to get the key out, so it must be working.