Sometimes it's easier with a visual that with an explanation..
so I've added a couple of screenshots to give you an idea.
1st Attachment : Press the grey Manage Attachment button
After pressing the grey select button a window with your C-drive (thats you computer where you keep your pictures..documents etc) should pop up.
Select the picture of your choice (double click it) and the select window (eg my 2nd attachment) pops up again
Press the grey Upload button in the right side of the window
Once the pictures are uploaded it will show under Additional Options (see 3rd attachment)
If I misunderstood and you have no problems with adding attachments but want pictures..not attachments to show I suggest you follow all the steps just mentioned THEN *click* the link (like the once shown in 3rd attachment) a window should pop up see 4th attachment
Copy the Url (addy)
Press the Insert Image Icon above your text area (the little yellow square one with mountains and a sun)
As far as I know the way you post thumbnails is to get a imageshack account (or a similar account) to upload your images to. I know imageshack gives the option of just posting a thumbnail..but since there is no limitation on how much you can store..I usually go for the full image or if I want an image shown somewhere inbetween in size I go for tFS's own image attacher (explanation as to how tFS's image attacher works is explained above)