Iphone asking me for a passcode to install update. I never set up a passcode. Options?

I just tried to update my iphone to 7.1.1 and i'm being asked for a passcode. I never set one up, but entered what I would have made it, and now have a message saying "FAILED. One more attempt".

What happens if I get this final attempt wrong?

How do I continue with update if I can't remember this passcode?

You can reset your icloud password, thats always needed when installing anything.