Error when changing to ‘pretty’ permalinks

I’m using 2.5 and I want to switch my permalink structure to ‘pretty permalinks’ (/%postname%) for SEO purposes, and am having some problems. Each time I try to update them, the admin panel says the update has been successful, but then I try to view a post on my site and get an Error 404 page. I read several WP permalink articles, but the whole .htaccess file thing is still a little confusing for me.

Does anyone know what might be causing this problem?