Your armature's shape is extremely different from the creature's shape: so the algorithm that should assign weight automatically can't decide which vertices to assign to which bone.
In this case you should choose the "with empty groups" option: it will create an empty vertex group for every bone of your armature.
Then you will have to weight them manually. Using weight paint; or selecting a vertex group, in edit mode selecting the vertices you want to be moved, and click assign in the vertex group mesh tab of the properties panel.
The corrispondence between bones and vertex groups is made by names.