Bob,
1) for an image, it has to be jpg or png format, and less than about 24'kB.
2) To attach the image, you have to be in 'advanced' reply mode. So click either the new reply button, left side below the message you're replying to; or click quote, right side bottom of the message you're replying to; or if you've clicked quick reply, then click "Go Advanced", below the text entry box.
If you look then look below the text entry box, the second 'additional option' down below, should be 'Attach Files' with a 'Manage Attachments' button. Click that button, which will open a new window/tab/popup, depending on your browser settings. In that pop-up, etc. is a 'choose' button, which will allow you to navigate to the file on your computer, select it, and then click 'Upload'. You can repeat the choose/upload cycle to add additional attachments. (each has a 24'kB limit).
Give that a shot, let us know if I've managed to confuse you.