this should explain it.
basicly you type [ img]*link to pic[/img] Your link needs to be complete with the http:// at the beginning of it. so you picture needs to be posted online.
the other way to do it is go down where it says attach file... click browse, click on the file on your computer that you want to upload. the hit submit.
also, if you do a search, you'll find hundreds of threads like these.
hope this helps