Small mistake, this icon

can only be used to insert the HTML code for an image that exists on an Internet
server or photo hosting service such as Flicker or another website.
To insert an image or any other approved file type from your PC/MAC use the Paperclip "Manage Attachments."
Please note the restrictions on File sizes (bytes) and dimensions (pixels).
The picture file sizes and dimensions one normally downloads from their digital camera far exceed the maximums allowed. You should reduce the dimensions of pictures and save the new file using compression.