I recently turned 70.5 years old & did the RMD from my ira. I elected to not have federal taxes withheld, but I'm wondering if that was a mistake. Could I be fined or penalized when I file my 2014 taxes for not having taxes withheld? Thanks

Yes, in my opinion it was a mistake to not have federal taxes withheld. Reason is that (a) come April you will have to find the cash to pay the tax man, and more importantly (b) you may owe interest on the underpayment of taxes during the year. In general the interest is due if you don't pay at least 90% of the total tax bill during the year, but there is an exception if you pay at least as much as last year's tax bill. My advice is to have them withhold taxes, and that way reduce the risk of having to pay interest.

I have already took the RMD, is it possible to pay the taxes on it now, to avoid the underpayment interest. How should I proceed to do this?

You can file a quarterly estimated income tax payment, using form 1040-ES. See:
Internal Revenue Service/pub/irs-pdf/f1040es.pdf