There are five types of style: paragraph, character, frame, page, and list. Before you can create a new style using the New Style from Selection button in the Styles and Formatting window, you need to select what type of style you want to create - using the buttons at the left of the window's button bar. The only reason I know why the New Style from Selection button should be greyed out is that you have a style type selected which is inappropriate for the current selection or cursor position - e.g. if you have Frame Styles selected but no frame is selected in the document, or if you have Paragraph Styles selected but you have a frame (not its contents) selected in the document.
I trust this helps.
Brian Barker