click the little picture icon above the area you type your post in, the little box that looks like a picture of a mountain, and put the URL of the pic there.
Note that you don't "upload" images to the server tho - you "link to" them. You have to have them hosted somewhere else - PhotoBucket seems to be common. I use a "slush" folder in my website space for that as well - in my case, it's easier.