I decided to post a small entry about how to upload an image in the blog system, since I had some trouble before figuring it out.
So here is how you do it:
Click the camera button in the editor
Click on the upload button
Enter a descriptive title, click 'Browse' and find your image.: If you click on the preview button you will see a small thumbnail of your image.
Unless you want to just upload a thumbnail of your image, choose 'Other' from the size drop-down.: You can also change alignment of the image, I usually only go with 'center' if the image should fill the whole post.
Change the first values (it's widthxheight) so the image will fit in the blog, then click 'Insert'.: You'll notice that the other size value will also change when you edit one of them to keep the ratio.
[EDIT]: If you think that people will not benefit from seeing He-Man in full size in your blog post, you can also just insert a thumbnail and link it to the full image.
Set 'Size: Thumbnail' and 'Link: Link to image page', then click on 'Insert'
Note: The last image is taken from the, very much nicer looking, new image upload interface. It still works the same.
Here is an example of a linked thumb: