Quick Summary:
Templates> Add/Edit Template> Drag Image Content option into the body of the message> Browse> Select Folder. Upload or choose image. Insert. Must be a jpg or png file.
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Learn more about Email Template Creation: CLICK HERE.

For Very Old Accounts, this applies to the VERY old, outdated templates. Please use the new template builder. But if you're editing an existing template, here's how to add an image to that:
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To add an image to an email template, click on the Image Icon. Go to the Upload Tab. Upload the file and send it to the server. Either click OK here to insert the image or go back to the first Image Info tab to resize/align the image and then click OK.

Step 1) Click on Image Icon
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Step 2) Upload file, Send it to the Server & hit OK (or Upload file and go to step 3)

Step 3) Image Info settings