You are Iron Man. The red circles indicate your health. The blue ones indicate Captain America's health. One circle equals one health. You have to defeat Captain America by using your machine gun (stays in one place) to strike him when you can by hitting space and by making sure you don't get hit by Captain America's shield by using the up and down arrow keys to get away.
Credit to Marvel. Sometimes you have to restart a game if Captain America doesn't fire his shield. Wait about 5 seconds to make sure he is not firing his shield. I have no idea why he does that.
