You can add small pictures (jpg's up to 97k) as an attachment. In advanced mode click on the paper clip button then using the upload window that appears browse for the image on your computer and upload. The image will ten be accessible by clicking on the text link that will appear in the post.
Larger images that will appear directly in the post need to be hosted on an external server, such as your own web site if you have one or a free photo hosting site such as flickr.com, you'll need to create an account, which in turn requires a yahoo ID (also free). When you've uploaded your photos to flickr or wherever you need to determine the URL of each photo, one way to do this is to display the photo on flickr, right click on it and select "copy image location", then to insert the image into your post, in advanced mode click on the insert image button (The yellow one with mountain peaks) and paste the image location copied earlier into the dialogue that appears. And thats it!
I know some use have had problems copying the image location when using Internet Explorer, Mozilla Firefox is a better web browser that will do the job without problems.