Through the O-DL interface, You'll have already created a documents root folder, that resides under the "/Portals/[0]" directory.
The is the virtual directory where you have installed your DNN application.
The [0] is the default parent portal id. If you have installed O-DL in a child portal, the [0] directory will have a different number or name.
We'll call the documents root folder "O-DL root folder" and it will be located "/Portals/0/O-DL root folder"
1) Go to IIS Manager and select the WebSite that you want to configure to use WebDAV. It could be Default Web Site or other. It's important to select the WebSite although you had installed DNN as a virtual directory or an application under some WebSite.
2) Double click on "WebDAV Authoring Rules" icon.
3) Click on "Enable WebDAV" on the right Actions panel. This setting is only visible in the WebSite, not in virtual directories, applications or folders.
4) Click on "Add Authoring Rule".
5) On the "Add Authoring Rule" dialog select All content, All users and mark all the permissions. If you add these settings over the WebSite, they will be inherited by all the virtual directories, applications or folders under it. NOTE: If you added an authoring rule with the same options on a virtual directory, application or folder, you'll need to remove that rule from the places where you created it and then, create the rule over the WebSite.
6) On IIS Manager, select the ODL root folder and click on Authentication. The root folder is usually Portals\0\root.
7) Make sure that Windows Authentication is enabled for the ODL root folder.
8) On Windows Explorer, navigate to the ODL root folder and open its properties dialog.
9) On the security tab of the properties dialog make sure that Everyone, Network service and IIS_IUSRS have full rights on the folder.
Note: If after configuring the above, there are still issues with read-only documents, try this: configure the application pool to run in “classic mode” and add a registry key to enable documents to be written: http://support.microsoft.com/kb/870853
Open the IIS Manager, and click on the WebService Extensions folder in the navigation tree on the left panel.
In the list of the Web Service Extensions that will appear on the right, you will see WebDav. If it is disabled, click on the Allow button.

Open the IIS Manager, and navigate to the folder corresponding to teh O-DL root folder in the navigation tree on the left panel.
In this case it will be "DotNetNuke4.7.0/Portals/0/O-DL root Folder"
Right click on the root folder, and wclick on the properties option in the context menu that will appear.
The Properties window will appear. Click on the "Write" checkbox as shown in the image below.

Go to the module settings and enable WebDav as shown in the image below.

Once WebDav is enabled, an additional icon will appear below the download icon (teh icon with teh orange arrows in the image below). Use that additional icon to open the document directly from the server and save any changes directly to the server.