Yes, images can be shown in your posts. You may be able to upload the image to the board if it is under 2MB. Otherwise, you must link to an image stored on a publicly accessible web server, e.g. http://www.example.com/my-picture.gif.
You cannot link to pictures stored on your own PC (unless it is a publicly accessible server) nor images stored behind authentication mechanisms, e.g. hotmail or yahoo mailboxes, password protected sites, etc. To display the image use the BBCode [img] tag.