ProofBuddy requires either the ImageMagick or GD libraries to be installed on your server to handle the image resizing and grayscale / sepia conversions.
If you get this message, check with your host. They may have it installed in another location or may be willing to install it for you. ImageMagick is a free program, so aside from a little time, it shouldn’t cost your host anything to install. If ImageMagick is installed in another location, you can change the path on the Options->Images tab.
Starting with version 1.0 of ProofBuddy you can also leave the ImageMagick path field blank. Most servers will know where to look.