The NM wants to store the WPA passphrase for you in the key chain, so you only need to remember one password in the future. The password for the keychain. You only need to unlock it once per session. You can either setup the keychain with a password to unlock it and let nm store the WPA passphrase, or cancel and use the passphrase directly.
Of course, the passphrase for the router needs to be correct, and there could be other reasonably why authentication fails.
I don't use Gnome, and don't know the name of the keychain setup tool, but you can find it easily in the menu. Set up the keychain, so you can concentrate on the wireless problem.