You're running under Linux, I suppose.
The problem is with the config of your OS. Linux treats both socket connections and files as "file descriptors" and by default allows a maximum of 1024 "files" open at the same time.
You can check the limit in your OS by typing this in the terminal:
and you can change it with:
Make sure you run SmartFoxServer under the same user you used for changing the limit
hope it helps
p.s. = If you logout the change will be lost.
if you are a little familiar with the Linux shell you can alter the sfs script to incorporate that ulimit command.