Gary,
As far I understand it. You need to upload an image to a image server first, for example
http://imgur.com/Once your upload the image, you can then use the image's url with the image tag, for example:
[img]http://i.imgur.com/VkQ4JmB.gif[/img]
will produce the image below.

There may be other ways to do this, but this is how I know how to do it. Make sure the image url you provide containts the file extension (e.g., gif, jpg, etc)