In SEO settings, set YES for the first two. The 3rd is per your preference.
1. You should rename htaccess.txt to .htaccess on server.
2. If it doesn't work (still 404), please delete all text inside .htaccess and upload it like that.
3. If it still doesn't work, please ask your hosting provider how .htaccess should look to work with Joomla
Keep in mind, if you are testing Joomla on your local computer, SEF will usually not work (and it don't have to, as it has not purpose on testing environment).