I'm not sure what "Have you created a repository using Rational Administrator?" has to do with the topic License Error. I think nothing.
Hari, you need either to point to a Rational (FlexLM) license server, which could be on the same local machine, or to enter license keys locally.
If you have floating licenses, they must be provided by a license server (which can run local) and you need to 'point' to this server to obtain then. You can run the installer again and this time choose License Server, then install.
If you have node-locked licenses, you can enter these locally. Try Start -> Programs -> Rational Software -> Rational License Key Administrator.