When you preview your post, there’s a line on the bottom with a click-box that will allow you to browse your hard drive and find the image. It has to be <100k bytes. When you click the post button with the filename in the box, it will upload the image and attach it to the post.
If you put it on villagephotos, it’s a similar upload procedure, but then it gives you a url that you include in your posts with something like the following using square brackets instead of curly:
{img}http://img.villagephotos.com/p/2003-2/109391/QVSDKUHJXBOPNRMONGJH-Robert_John_tiny.jpg{/img}
and it will end up like
Good luck.