DynamicModule assumes you give a list of local variables:
DynamicModule[{fdm, n, m, \[Alpha], \[Beta], h, a, b, A, B},
fdm[n_] := (m = n - 1; \[Alpha] = -4 + h^2; \[Beta] =
6 - 2 h^2 + h^4; h = 1/n;
Do[Do[a[i, j] = 0, {i, 1, m}], {j, 1, m}];
Do[b[j, 1] = 0, {j, 1, m}];
b[m, 1] = -9 - 3 \[Alpha] - 5 h^3;
b[1, 1] = 3 + 2 h - h^2; b[2, 1] = -1;
b[m - 1, 1] = -3;
b[2, 1] = If[n == 4, -4, -1];
Do[a[j, j] = \[Beta], {j, 1, m - 1}];
Do[a[j, j] = \[Beta] - 3, {j, m, m}];
Do[a[j, j + 1] = \[Alpha], {j, 1, m - 1}];
Do[a[j + 1, j] = \[Alpha], {j, 1, m - 1}];
Do[a[j + 1, j] = \[Alpha] + 1, {j, m - 1, m}];
Do[a[j, j + 2] = 1., {j, 1, m - 2}];
Do[a[j + 2, j] = 1., {j, 1, m - 2}];
A = Array[a, {m, m}];
B = Array[b, {m, 1}];
Flatten[LinearSolve[A, B]]);
Panel[SetterBar[Dynamic[n], Range[4, 20]],
Dynamic[ListPlot[{fdm[n]}, Joined -> True,
PlotMarkers -> Automatic]]]]
You may consider using SparseArray to define your matrix A:
SparseArray[{
({i_, i_} /; i < m) -> \[Beta],
{m, m} -> \[Beta] - 3,
({i_, j_} /; Abs[i - j] == 1 && i < m) -> \[Alpha],
{m, m - 1} -> \[Alpha] + 1,
({i_, j_} /; Abs[i - j] == 2) -> 1.}, {m, m}]