The line starting with `%` is required only for [TeXShop](http://pages.uoregon.edu/koch/texshop/). If you are using TeXShop as your editor, check and make sure that your installation is up to date. SageTeX functionality was included with TeXShop a while ago, but it's good to make sure you are up to date.
If you are using LaTeX from the command line or using some other editor, you should make sure that the SageTeX `.spkg` is installed in your Sage distribution (see the [SageTeX documentation](http://mirrors.ibiblio.org/pub/mirrors/CTAN/macros/latex/contrib/sagetex/sagetexpackage.pdf) section 2 for this). Also, make sure the `sagetex.sty` file is either in your local directory with the TeX file you are typesetting or else make sure it has been copied to your local TeXMF directory (again, see the documentation for SageTeX).
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