Howdy
What you need to do first is click the "User CP" button at the top of the screen. In there, select the "Manage Files" link.
At the bottom of the screen that appears, you click on the "Browse" button and select the image you want to upload off your computer, then hit the "Upload New File" button. It will upload and show you the link to the new file. Click on that and it should open in a new window for you. Select the address and copy that and when you go to put an IMG, use that address when it prompts you for the address(with a really cool/useful popup window might I add). That should be it. Let me know if you are still muddled.