-o is a parameter for the call of sqlcmd a call could look like this
sqlcmd -S SUPPORT2/SUPPORT2 -U sa -P solutions -Q " SELECT Ename from Vallett.dbo.EmployeeMaster_tbl" -o C:\temp\test.txt
Make shure the destination file can be written (C:\txt1.txt might not be possible)
If you want to create the output file interactive you can use :OUT to redirect the output to a file and reset ist to stdout. An example could look like this:
sqlcmd -S SUPPORT2/SUPPORT2 -U sa -P solutions
use Vallett
GO
:OUT C:\temp\test.txt
SELECT Ename from dbo.EmployeeMaster_tbl
GO
:OUT stdout