Tim swIL has created an excellent tutorial for embedding, attaching or uploading pictures to your posts.

It is important to remember that uploaded pictures must be smaller than 128K or they will not upload.

If you decide that you would rather link your pictures, then they must be stored on a web-server somewhere that all users have access to. You cannot link to pictures that are stored on your local computer. If you try that, your picture will display for you but no one else will see anything but a red X. If you decide to upload the picture with the Add / Remove attachments link at the bottom of the post you are creating, then they can be on your local hard disk. The upload process automatically copies them from your disk and stores them on this site & makes them viewable by all.

The picture tutorial is here: http://www.newagtalk.com/faq/image-tutorial.htm