Gmail recently introduced a shiny new feature, while not new to the wide world of email, adds a useful capablity for us Gmail fans. You can now insert an image into your email messsage, not as an attachment, which had been previously available, but directly into the body of the message. Great for spicing up your email and particularly good for sending images to folks like, my mom, who fully understands email, but attachments — not so much.
Images can be uploaded from your computer or taken from the web.
To use, go to the Labs feature in Gmail and enable Inserting Images which will add an image button to your Compose toolbar.
Read more — Gmail blog.