Charlie –
You almost got it. You just mixed up our two options. If you’re going to upload from your computer (which you’ve done there based on the file tree), use the little attachment utility at the bottom, just like attaching to an email. That will make the pics appear at the bottom of your post.
If you want to post pics in-line and position them in your post, you’ll have to host them on the internet, for instance on photobucket as many have done above.
Then you’ll use the [ img ] [ /img ] tags (but close the spaces) and put the http://www.example.com/picture.jpg address in between them.
Zach