you have to first upload the image to a 3rd party site.
I use this one.
https://postimages.org
After you upload the image, they will give you a series of links to that image. I copy the direct link to the clipboard
Then you need to paste that link here using the image insert tool above (looks like square with mountains inside).
Once you click it, paste in the link you got from the 3rd party site and click insert.