The error 'Entitlement Not Set' is caused by the employee's post not having a holiday entitlement template assigned.
To resolve this:
Search for the employee and go to their profile.
Click Employment, then Position.
Click Post Details.
Select Absence, then Leave in the menu on the left.
Click Edit in the Holiday Entitlements area.
Select Template.
Choose an option from the Template dropdown and click Save.
Once this is done, go back to the employee's profile to add leave.