Was your optical drive working before you deleted the OS?
Are you holding ONLY the "c" key for startup? There is some misinformation out there that you had to add a modify key like COMMAND or SHIFT but that was wrong.
As you using a Apple keyboard? Some third-party boards may not recognized special Mac startup keu combos. If you have a wireless keyboard, it may not work at all.
First, you may need a USB wired keyboard (I'm not certain if a Bluetooth keyboard will work).
Put the install disk in the slot. Hold down the option key at start up. This will bring up the Start Up Manager. Select the install disk. Or, if it sees your old System folder, start from it. If you manage to start from your old System folder, once the computer has successfully booted, go to System Preferences >System > Startup Disk and select your normal OS X boot drive.
Side note: Have you ever replaced you PRAM Battery? It looks like you have an iMac G5, and this is your replacement battery:
You can also find this battery at you local Walmart, Walgreen's, CVS, etc. (probably around $5 there, $12 from Radio Shack).
If the above doesn't work, try this User Tip:
I know it says for OS 10.6., 10.7, 10.8, but there is a lot of good info there.