I am looking to set a condition on a transition to IN PROGRESS that will stop and display an error message if the Assignee in the transitioning task currently has a task already In Progress OR if I can't stop it from transitioning based on this rule then automatically move already assigned In Progress task to another status (in this case an On Hold I have created)
You will need one of the scripting apps, or an app that can do clever "conditions", as you'll need to code for, or configure, something that can run JQL to look for "assignee = currentuser() and status = in-progress", count the results and block the transition when the result count is more than 0.
Are you working with a Team Managed project or a Company Managed project?
The built-in options for Validators in workflows don't support this. For Company Managed projects you might be able to find a 3rd party app that would extend the Validator capabilities. You can find several in the marketplace but you would need to review them to see if they provide a way to accomplish your goal.
https://marketplace.atlassian.com/search?hosting=cloud&product=jira&query=workflow%20validators
These seems like something that could be done with an Automation rule, but I haven't worked out exactly how to do it. I don't work a lot with Automation rules, so it would take me some time to figure it out. Hopefully somebody more familiar with Automation rules will respond.
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