How do I insert a picture into Gmail?

You can’t insert or paste a picture directly into Gmail, but there is a workaround.

Create a google doc, insert your picture or create your entire email message. Select All (Ctrl-A) and Copy (Ctrl-C), then open a new email and Paste (Ctrl-V) into the email. Make sure to format your Google doc for text wrap or alignment before you copy and paste it into your email.

Recently, Google introduced a new Lab feature, called “Inserting Images”.  Enable this lab feature in Gmail settings, and you’ll be able to insert images via a graphical interface while composing a new email.