Click the icon in the toolbar above the post form that looks like mountains against a pale yellow sky.

A small window will open in front of your browser. Click the Upload tab. Click the Browse button and find the photo you want to add. Click the Send it to the Server button.
After the photo uploads you should be back on the Image Info tab, and your image should be visible. You can make this window larger if you like. Now play with the values to the left to adjust the size, spacing, and alignment of your photo within the text.
Try Align Left or Align Right and you'll see text wrap around the photo. Change the Width or the Height and the other dimension will change in proportion to the one you changed.
Click OK when you are finished adjusting the photo. The photo will appear wherever your cursor is in the main blog post form window. You can now click on the photo and drag it wherever you want it in the text.
To change the size or alignment or other properties of the image, click on it to select it, then click the "mountains" icon again.
You can also resize the photo by dragging one of its handles, which appear when you click on the photo to select it.