In markdown you can use the syntax: 
This only works for eternally hosted images (Imgur, etc.). We do not have facility for storing them on the site itself at this time.
(Technically, this functionality is just a part backend software's capabilities. It is not actually a site feature, it just happens to work. Only the Avatars and the Story Cover images are actual supported image features right now. We have noted that people would like to be able to add pictures into chapters, but this will require some added work if/when we are able to do it.)