First, host your image on a public site such as ImageShack, PhotoBucket, or SkyDrive.
Once you have your image there, right-click it so that you will have the entire address. An example is http://www.best-trade-car.com/blogpics/nissan-gtr.jpg.
Now, when you go to write your post, click on the <> symbol down towards the bottom and enter the image tag as shown below.
<img src="http://www.best-trade-car.com/blogpics/nissan-gtr.jpg" /> Your image will appear as below.
Make sure you enclose the link in quotes and make note of the space preceding the foward slash at the end.
Now, click back on the pencil looking icon to see the draft along with the pic.