When using the Use URL Rewritting setting in your global config, you need to have a .htaccess file in your website root. (For Windows servers with IIS, they use web.config instead).
The first thing that BF SEO does is check to see if you have a .htaccess file in your website root. If not, you have the option of creating one. A Joomla site normally comes with a htaccess.txt file, so the software will attempt to create your .htaccess file based on that. If your site does not have a htaccess.txt file, then a basic .htaccess file will still be created.
The built in editor will display your current .htaccess file, and give you the ability to edit it.
Warning: Be VERY careful, as just one incorrect character in your .htaccess file can cause your site to break. If you do something wrong and end up with a 500 error, you will need to manually delete your .htaccess file from your website root, either via FTP or your CPanel file manager.
If you are looking for a more sophisticated .htaccess file, then I hightly recommoned using Akeeba Admin Tools, which can create a really good .htaccess file that protects against many common exploits. The .htacess maker in BF SEO is only designed to provide the bare minimum, so you can get something up and running quickly and easily.