The tool failed to create or alter the input geodataset's projection definition. The feature dataset may be locked by another application or user, or it may be read-only.
Make sure the dataset is not locked by closing other applications that may be using it or ensuring it is not being accessed by another user. If you are using a projection file (.prj) to define the projection, make sure it is formatted correctly. See How to define coordinate systems and projections in ArcCatalog for more information. Finally, check that the output dataset is not read-only using the file system if working with a shapefile, raster, or geodataset in a local geodatabase (file or personal). If working with an ArcSDE geodataset, check its permissions and change them accordingly.