Some missing steps from Terraform's "Basic Two-Tier AWS Architecture" README.txt
(1) If you have an AWS account that allows for "EC2 Classic" then this whole example might not work for you. I have an ancient AWS account that has EC2 Classic support and have found that other Hashicorp examples do not work. (The networking and security group defaults seem to be wrong.) You call tell if you have an EC2 Classic account as to will see "EC2" inaddition to "VPC" listed under the "Supported Platforms" of the "EC2 Dashboard." I advise you to create a new account and use that instead; I did.
(2) Generate an SSH key pair on your local machine, eg
ssh-keygen -f id_terraform_two_tier