OTSCMS can't write to configuration file. Setup will save startup database connection configuration in that file. Note that usualy user under which OTSCMS runs is the user under which HTTP server is running and usualy it's not the same as you, or your FTP user. To make it writeable for OTSCMS execute following command in your command line:
touch config.php && chmod 777 config.php
If you are running on Windows then check file properties.