Most likely you do not have the GD Library enabled on your testing server see the Enable the GD Library setting on your testing server" tutorial on the learning resources page:
resources.php?utm_campaign=Forum_header&utm_medium=Forums&utm_source=WebAssistForums
after capthcha has been applied to the page, click the captcha place holder image, this will trigger an edit button in the properties inspector, click the edit button to modify the captcha settings.