The Web doesn't work like your word processing program. When you copy and paste, any pictures or other non-text are copied by reference. In other words, it doesn't create a copy of the picture, it only copies the link to the picture. If your link is to a temporary file (like when viewing your Windows Live email) then it may work for you for a short period of time while still in your computer's cache but nobody else will be able to see it. You can copy and paste from any permanent Web source, which is why you can paste a YouTube video or a picture from Yahoo and it will work. That is still only a reference, so if YouTube/Yahoo ever removes the file from their server the reference is broken and it no longer works.
If you want to publish a picture that isn't from a permanent web source (e.g. your own photo) you can upload it to this server as I explained in the messsage above. Put the cursor in the editor box and click the Upload Picture button (
) Select the picture from your computer then hit Upload. Very simple, and the only way to upload a picture. It would be a huge security hole if your browser allowed web sites to just suck up files from your computer so that process must be followed for every picture sent.