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Configuring the Media Derivatives API module requires ffmpeg. There are dozens of tutorials on configuring FFMPEG for Ubunutu or your favoriate flavor of unix, but compiling and configuring FFMPEG on OSX can be tricky because of the way Apple implements some unix packages. Using the precompiled FFPEG found in ffmpegX can save you a lot of time.
Copy the ffmpegX.app from the .dmg to your Applications directory.
Open ffmpegX and follow the instructions to download and add mpeg2enc, mencoder, and mplayer to the installation. This requires you to download each item and then locate it with ffmpegx
If you are more comfortable using a graphical UI:
Control-click on the ffmpegX application, choose Show Package Contents from the pop-up menu, and navigate into Resources.
Drag and drop ffmpeg to /usr/local/bin (may require showing hidden folders)
Right click on /usr/local/bin/ffmpeg and Get Info
Check the Sharing and Permissions that system is the file owner and wheel is the group and that system has Read & Write and that wheel and everyone have Read access.