The Add Media feature, in the editor toolbar, allows you to embed and display an image directly into your message. This is different from attaching an image which only creates a link, under your message, to the file.
The Add Media feature is accessed by clicking this button on the toolbar:
Note: as with all the other buttons on the toolbar, holding the cursor over it pops up its name:
The Add Media feature can obtain the media to be embedded in two different ways: 1) upload an image to the site or, 2) embed an image hosted elsewhere.
Upload an Image to the Site
Click on the Add Media button and ensure the Upload tab is selected. Next, choose a local file from your system. The file, which cannot be larger than 10 MB and must use one of the common graphics formats (JPEG, GIF, PNG, or TIFF), is uploaded immediately to the site. Once the upload process is complete, click on the Next button where you can specify the (optional) alternative and title text for the image. Clicking the Save button inserts the image at your cursor's position.
The image will be displayed at its full size and if it is larger than your browser's width, it will automatically be scaled to fit.
Embed a External Image
Click on the Add Media button and ensure the Web tab is selected. Next, insert a valid URL for the image you want to display in your message. The URL must end with a file extension for one of the allowed graphics formats mentioned above. Clicking on the Submit button inserts the image at your cursor's position.
This process actually uploads a copy of the image, indicated by the URL, to the site which is then embedded into your message.
2. Although pasting an image from the clipboard (without using the Add Media button) may sometimes work, it is not a supported feature - and does not work in all scenarios.