The way I do it, is using a hosting site like Photobucket... then you click the "IMG URL" it gives you, and past it into the reply box
If you want to use an image from somewhere else on the web, you right click the image, hit "Copy IMG URL" and paste the image into the reply box with [ img ] (minus the spaces) at the front and [ /img ] (minus spaces) at the end
I use tinypic.com - really simple and free, and no sign-ups (unless you want to). It even has message board code done up for you so you can just copy/paste it.