Is a yellow sign marker still added if the terror level increase is reduced to 0?
Using this card when the terror level is increased by 1 would effectively make it increase by 0 and prevent the requirement to place the yellow sign token.  Notice the wording of the card is to discard it when the terror level is increased to reduce the amount increased.  If it had said something along the lines of discarding it to decrease the terror level, then one might construe that to mean the terror level increased then decreased, but in this case it strongly implies you are cancelling the action, not subsequently reverting it.