MPDluxe is a client for the MPD music playing system. If you have MPD, it will prompt you for the host name/IP address and port of your server and an optional password (if you have one). If you don't have MPD, MPDluxe is not of much use; the good news is, though, that MPD is free software.
The MPD website has more information. If you use Linux, your distribution probably has a MPD package you can install; for example, on Debian or Ubuntu, you would do
apt-get install mpd
Given that MPD is a server process, which sits in the background, listens for commands over the network and plays music on command, Linux (or another UNIX-like system) is probably the best fit for it. There are apparently Windows packages on the web site.
If you wish to install MPD on an OSX machine, this page has instructions.
(Alternatively, if you want a small, cheap Linux-based MPD box, you could buy a Raspberry Pi or a similar small single-board computer, install a Linux distribution, and use that as a MPD server. If you use a Raspberry Pi for music playing, though, you may wish to invest in a USB audio interface or external audio board, as its sound quality is notoriously poor.)
In most cases, your MPD server will be on your local network, and will typically be referred to by the IP address of the computer it is running on, and the port that MPD is listening for commands on. The most common MPD port is 6600, though it can be different.
If your MPD server is configured with a password, enter the password in the form. If not, make sure the password field is blank.
First, make sure your iPhone or iPod Touch is connected to a WiFi network that your server is reachable from. It is not possible to reach local servers through a mobile phone (3G/4G or similar) connection, and MPDluxe is configured to only connect through WiFi networks.
Secondly, double-check the configuration details (the host name/address, port and password) given to MPDluxe. If you are uncertain of whether the MPD server is working, try connecting to it with other clients (see the MPD website for more information).