This has historically been a difficult process too explain to clients/users.
There are many plugins/workrounds that have evolved over time, but the new File Manger sounded like it was going to make the whole process easier.
I have been trying out 2.0 and found that it it is in fact harder than it was under 1.6 and the plugins etc. aren’t available for 2.0 yet.
I am not sure if this is a feature request or just a prayer. This is how I would like to see the process of adding one or more images to an entry somewhere in the text flow.
1. Click image link with the cursor where you want the image.
2. Pop-up with a browse to file to upload.
3. Clean the filename to be url friendly.
4. Automatically resize the image to the maximum size set in upload preferences (if larger).
5. Create a thumbnail (and put it in a separate thumbs folder for easy gallery type display options) automatically sized to that set in the preferences.
6. Insert the image code for the thumbnail and a link to the larger version where the cursor is positioned and then close the pop-up.
It would be nice if the code for the Image button could be configurable to allow custom setups of thumbnail alignment (left or right), where to open the full sized image (pop-up, lightbox, or gallery page etc.)