WordPress might give this error on uploading an image from media library. It means that wordpress isn’t able to save your file.
It is really easy to fix. However, this may not work for all:
Go to Settings->Media. Change the path in ‘Store uploads in this folder’ option to ‘wp-content/uploads’ (without the quotes).
If this doesn’t work you may have to change the permission of your wp-content/uploads directory to 0755. Read this to learn how to change directory permissions.