First of all you should use the "go advanced" "rather than the "quick reply"
then the simple system is to attach an image by clicking "Manage Attachments" in the Attach Files section at the bottom of the screen.
Browse to file (on your PC), don't forget to click on upload and then close.
That's what i did to attach the little picture of the digger and the cuppola below (See the clickable link in the Attached Images box at the very bottom of this post)
Otherwise you can display an image in the post itself...
To do this you need the picture to be hosted somewhere on the web. In a place aqthat everyone can access it. Ie: behind the firewall on a university LAN will not work, nor will a file sitting on your PC.
there's many places you can do this for free. I upload some of mine to photobucket.com
Once you have done that you can wrap the URL (such as http://i4.photobucket.com/albums/y146/-Lotts-/thWoolstore01.jpg
) of your photo within the IMG tags
The "Insert image" button in the "go advanced" section does all this for you
Here's what it looks like - I did this with a ting picture of the woolstore
Hope this helps