Copying the Contents of One text file to Another in Java

It's finally, not finally():

try {
    //...
} catch(IOException e) {
    //...
} finally {
    //...
}

By the way, you have an endless loop there:

int c=fr.read();
while(c!=-1) {
    fw.write(c);
}

You must read the data inside the loop in order to let it finish:

int c=fr.read();
while(c!=-1) {
    fw.write(c);
    c = fr.read();
}

In the finally block, your fr and fw variables can't be found since they're declared in the scope of the try block. Declare them outside:

FileReader fr = null;
FileWriter fw = null;
try {
    //...

Now, since they are initialized with null value, you must also do a null check before closing them:

finally {
    if (fr != null) {
        fr.close();
    }
    if (fw != null) {
        fw.close();
    }
}

And the close method on both can throw IOException that must be handled as well:

finally {
    if (fr != null) {
        try {
            fr.close();
        } catch(IOException e) {
            //...
        }
    }
    if (fw != null) {
        try {
            fw.close();
        } catch(IOException e) {
            //...
        }
    }
}

In the end, since you don't want to have a lot of code to close a basic stream, just move it into a method that handles a Closeable (note that both FileReader and FileWriter implements this interface):

public static void close(Closeable stream) {
    try {
        if (stream != null) {
            stream.close();
        }
    } catch(IOException e) {
        //...
    }
}

In the end, your code should look like:

import java.io.*;
class FileDemo {
    public static void main(String args[]) {
        FileReader fr = null;
        FileWriter fw = null;
        try {
            fr = new FileReader("1.txt");
            fw = new FileWriter("2.txt");
            int c = fr.read();
            while(c!=-1) {
                fw.write(c);
                c = fr.read();
            }
        } catch(IOException e) {
            e.printStackTrace();
        } finally {
            close(fr);
            close(fw);
        }
    }
    public static void close(Closeable stream) {
        try {
            if (stream != null) {
                stream.close();
            }
        } catch(IOException e) {
            //...
        }
    }
}

Since Java 7, we have try-with-resources, so code above could be rewritten like:

import java.io.*;
class FileDemo {
    public static void main(String args[]) {
        //this will close the resources automatically
        //even if an exception rises
        try (FileReader fr = new FileReader("1.txt");
             FileWriter fw = new FileWriter("2.txt")) {
            int c = fr.read();
            while(c!=-1) {
                fw.write(c);
                c = fr.read();
            }
        } catch(IOException e) {
            e.printStackTrace();
        }
    }
}

More efficient way is...

public class Main {

public static void main(String[] args) throws IOException {
    File dir = new File(".");

    String source = dir.getCanonicalPath() + File.separator + "Code.txt";
    String dest = dir.getCanonicalPath() + File.separator + "Dest.txt";

    File fin = new File(source);
    FileInputStream fis = new FileInputStream(fin);
    BufferedReader in = new BufferedReader(new InputStreamReader(fis));

    FileWriter fstream = new FileWriter(dest, true);
    BufferedWriter out = new BufferedWriter(fstream);

    String aLine = null;
    while ((aLine = in.readLine()) != null) {
        //Process each line and add output to Dest.txt file
        out.write(aLine);
        out.newLine();
    }

    // do not forget to close the buffer reader
    in.close();

    // close buffer writer
    out.close();
}
}