Basically, "Zombie Elvis Found!" is a headline on newspapers that are found on the streets throughout Liberty City and Vice City. The newspaper depicts the headline, along with a black and white photograph of Elvis' face. The headline can also be found on a banner which is attached to the DeadDodo plane, which flies about the city.
This is an in-game joke towards the hysteria that revolved around the alleged "sightings" of Elvis during the 70's and 80's after his death. He is never seen walking around the streets of Liberty City and/or Vice City.
The red block (presumably the title of the publication) reads "Liberty Cock", yet another crude sexual reference by Rockstar.