Probably the password is being asked by rsh or ssh on the remote machine. By remote machine I want to say the machine you are not sat on. An easy test is enter
rsh <remote-machine> echo
ssh <remote-machine> echo
In both cases, if the immediate answer is a white line, you're ok to run rsync. If it asks for password and shows the white line or displays a message "connection refused" or "permission denied", you have to setup your machines to accept remote commands from the other to work properly. Make these tests and tell me the results.
rsync normally works without any configuration file for general purposes like as you are trying.
The purpose of an rsync server is to work as an ftp server as you can see in www.kernel.org.
It is very specific to send always the same set of files. The general purpose serves as a replacement for "rcp" or even "cp" when you are working on the same system.