How to attach the files:
At first, make sure the file you want to upload, fits the above mentioned size! If it's bigger, simply resize it using a photo editor or image viewer.
Now go to the "Upload Attachment" tab (right under the post editor window) and search the image you want to upload using the "Browse.."
button.
Then simply press "Add the file" button.
After the file is uploaded, you should see it right under the post editor window (as a clickable link). Clicking the "Place Inline" will post the attachment link at the actual cursor position.
If you wish to move the image within your post, simply copy and paste the entire link.
That's all! The link will be converted to a viewable image right after submitting the post.
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If you wish to post an image, which is already hosted somewhere (flickr, picasa, pbase, etc..) here is a description how to link these pics.
Flickr:
Right click on image you wish to post and from the appeared menu select "Copy Image Location" (Firefox) or "Properties" (IE/Firefox), select the Location/Address from the appeared dialog and then simply press Ctrl+C. Now you have the address in clipboard. Go to your forum post, click on the img button and simply paste the address stored in clipboard (Ctrl+V) between the displayed [img]path[/img] tags.
Picasa:
Although Picasa web albums allows you to select links via their web interface, it's easier to follow the above Flickr instructions

PBase:
In case of PBase, copy the path from the browser's address bar and add the .jpg at the end of path. Then repeat the above mentioned steps with img tags.