You should install first on your computer:
Microsoft SQL Server Compact 3.5 Service Pack 2: http://www.microsoft.com/en-us/download/details.aspx?id=5783
or
Microsoft® SQL Server® Compact 4.0 SP1: http://www.microsoft.com/en-us/download/details.aspx?id=30709
After install add reference by option Browse (in my case this assembly is in the directory: C:\Program Files (x86)\Microsoft SQL Server Compact Edition\v4.0\Desktop):