The picture needs to be hosted on another site and you will need the URL to the picture. Then, simply click the Img button and it will insert an image tag, paste the link to the picture following the image tag, and then click the Img button once more and it will close the tag.
Sorry. Uploading them and storing them here can end up being a huge drain on the server and my bandwidth. So, with so many free hosting sites out there (not to mention that most people already have some sort of online gallery), it is easy to host your photos online for free and then link to them from here.
That saves me money (this site is paid for purely out of my own pocket) and keeps the site moving at a decent speed.