The plugin uses timthumb to re-size and cache the images. The config is per default set to save the cached files in the server system temporary directory (which is better for security).
There are probably some sort of permission error with your system temp directory. Are you having other problems like uploading files? Are you running on a windows or linux server?
You can change the cache directory yourself in the timthumb-config.php file in the plugin folder if you would like to use another cache folder.
Please feel free ask if you have any more questions.
// Mattias @?Earth People