The forum uses a plugin to automatically resize photos to fit the forum layout. You can then click the top banner of each photo to view it full-size.
The IMG tags are for posting images from external websites - you must link to the actual image URL, not the page it is on. That means the image has to have a file extension used by images (.jpg, .gif, .png, etcetera). To initiate the upload feature, you must be in the full editor and click the paperclip icon. If you already have uploaded images to your post, you have to scroll down and click the Manage Attachments button. This will allow you to upload more images, or remove one or more of the images you have already uploaded to the post.