If you are on a computer, go to your dashboard and go to write a new post. Click on the icon in the editing row that looks like a picture of mountains (next to the word "Link"). You will be able to choose a picture from your computer (upload), or from a website (like facebook or flickr).
If you are using a picture from a website, open the picture in another website tab, and right click on it. Select "Copy Image URL." Then paste that in the URL box in your blog editing window.
If you want to post pictures from your Droid phone, download an app (blogger-droid is the one I chose). You will need to activate your Picasa account (it's free with your gmail address). Once you have done that, you can add photos from your phone to your blog posts. You open the blogger-droid app, enter in your credentials, and then enter the title of your post and whatever you want to say. To insert a picture, click on "Menu" on your phone. One of the options will be "Insert Picture." When you click on that, it will bring you to your albums. Choose whatever photo you want to insert. It will put the picture at the top of the entry (above any text you write). See my test entry below.
Let me know if you need help on any of these steps!