A very common cause of this error is due to file permissions. Joomla must be able to copy the files from your component into the components and administrator/components directories. If the system user the webserver runs as does not have write permissions to these folders, it will not be able to copy the files over.

The FTP layer is there to get around this issue. With the FTP layer on, you upload the component to the server first, then it is FTP'ed from the temporary directory to localhost. For this to work, the FTP user you specify must have permission to write to the components and administrator/components folders.

A simple tip from
Ultimatecine.com