This tutorial is for WordPress 2.6. I am using the Firefox browser, although it should be the same for IE also. To inset an image such as the one above, here is all you need to do.
First, you will need to have an image or photo on your computer that you want to use. I recommend using a photo editing program, (Irfanview is good and free), to re-size a copy of your photo before uploading it to your website. All of the photos I upload are re-sized first to a width of 800 px unless they are already at or below that. This is not necessary, but because some of my photos are very large jpg files, resizing a copy, (not the original), makes uploading my files quicker.
Next, while writing or editing the post you want to insert the image into using the “Write Post” admin panel of WordPress, put your cursor where you want the image to appear. Then on the “Add media” section of the toolbar, click on the first icon. (Hover your cursor over that icon and you will see it is called “Add an image”.) Once you click that icon, a window will pop up with the tools to upload and insert your image. There are many options there, but the simplest and quickest way I use it is this:
In the top left of the pop up window, click on the button labeled, “Choose files to upload”. Another pop-up will open showing files on you local computer. Navigate to the copy of the photo you re-sized in the first step above. Click to highlight the photo and then click the “open” button. The photo will be uploaded to the server on your hosting account. If you get the infamous “http error” message, then do this. Instead of first clicking on the button in the pop up window labeled “Choose files to upload”, find the line that says this: “You are using the Flash uploader. Problems? Try the Browser uploader instead.” If you click the link for the “Browser uploader” you will be able to upload without getting the http error message. Hopefully WordPress and the Flash people will get that conflict worked out in the next release, but using the browser uploader works well for now.
Now, once the image uploads, staying in the same window, you can set a few options to make your photo appear how you want it to. First you can enter a caption for the photo if yo want one to display underneath the photo on your post. If you do not want a caption, leave that section blank. You can enter a description if you like. This will not show, it is only for your benefit. Again leave blank if you like. Leave the link url alone for now. That is where WordPress uploaded your photo on your server. Then for the “alignment” choose one of “left”, “center”, or “right”. Finally choose the size you want the photo to display at on your page. I would choose “medium” to start. If that ends up being too large or too small, you can edit the photo later to choose “thumbnail” or “Full size”.
Now click the button labeled “Insert into post” and your photo will be placed into your post. If you need to change anything about the layout of the image, click once on the photo and then click the left “edit” icon. This will bring you back to the edit pop up window where you originally set the options. There you can change things like the alignment or the size of the photo. Click the “update” button when you are finished and the photo in your post will be adjusted to your specifications.
This should get you started. I suggest playing around on a test post with all the different settings of the image insert tool. Very quickly inserting images into your posts will be second nature!

