It's asking you for the source code that the kernel is compiled from. You must have this package installed for the Nvidia install program to compile the module that works with your version kernel.
Once you have the kernel source RPM installed and you reboot you will find there are other issues as well. Don't panic, it's not too difficult.
1)Reboot after installing kernel source RPM
2) If this a dual boot system (Window and Fedora) use option A, if not use option B:
A) Select the OS kernel you want to boot by arrowing up or down to that line, don't hit enter. Edit the boot parameters with "e"-key, and remove the "rhgb
"-parameter from the boot parameters by backspacing four times. Then continue booting normally by hitting enter.. (This will skip the RHGB
graphical boot in Fedora.)
B) Fedora will complain about not being able to start GDM or Xserver, ignore it by clicking NO or cancel to all the questions to get to the (init3 text) login prompt where you will logon as root.
3) Enter "modprobe nvidia" to load the new nvidia-module.
4) Then enter "cp -a /dev/nvidia* /etc/udev/devices/" to fix the problem of the drivers disapearing after a reboot.
5) Next enter " chown root.root /etc/udev/devices/nvidia* " which sets permissions for drivers.
6) Now just enter "init 5" and you're back in business.
The Nvidia Linux forum has been a great help to mee:
This thread is specificly for FC3 and Nvidia driver issues: