You need to have a host like photobucket -- you can't do it straight from your hard disk.
For example, to post this picture of Rachel Maddows:
I used:
<img src="http://i2.photobucket.com/albums/y5/freedumb2003/balki2.jpg" height=300>
I limited the height because this picture is a bit large...
Gee, Rachel looks good there.
;)
This is Rachel Maddow:
LOL!!
She looks exactly like Balki. They could be brothers :)