The insert image tag [img] is a link to an image somewhere already on the web. It is "UBB" code, not "HTML" so it doesn't use all the same attributes, like for resizing, alternate text, ect.
If you are trying to upload your own photos from your computer and display them here, just below the text-entry box there is an "additional options" link where you can upload a file, but there is a size and byte limit. You can resize it with any image editor before uploading.
If you are not already familiar with the tools DanS describes, you should check them out, and you can then use the [img] tag. It also lets you maintain a little more control over your own files by not uploading them directly to a bbs or forum.