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First, you have to place your photo on a photo server somewhere.
You can use:
hpphoto.com
photohost.org (when its servers come up again after the storm)
or many others.
Once your photo has been uploaded to the photoserver it can give you a URL address for your photo. You can find this by right clicking on the photo and selecting properties and then highlight the url and copy. Or some of the sites will have a button you can press that will give you the url.
As you type your message place the cursor where you want the picture to appear and press the Image buttom below the test screen. This is one of the bottons that say -- Bold, Italics, Underline, Url, Image, help.
This will insert a "[IMG][/IMG]". Place the cursor between the ][ and insert the url that you got from the phote server site.