Before removing the casing from the Pwnagotchi, there are two LED's with different functions

The green LED is the Rasperry Pi Zero's data indicator. This will flash as the SD card is being read/written to

You have the option to disable the LED if you connect to your Pwnagotchi and change it in the settings

The Blue LED is from the embedded battery in the Pwnagtochi casing. This LED only turns on when the battery is being used