How to use the Joomla Media Manager and how to insert images and links in articles
Through the backend's Media Manager of your site you can upload images and other files on your account. You can, of course, also do this with an FTP client but the Media Manager makes it possible to use the backend of your Joomla to perform this task.
To access the Media Manager, log in to your admin panel and either click on the Media Manager button or go to the Content menu and select Media Manager. In the Media Manager you'll see the files uploaded in the images folder on your account. By default, with sample data installed, there are a few Joomla logos and two subfolders (banners, sampledata). You can create subfolders by typing the name of the subfolder in the field next to the Create Folder button and then clicking on the button itself.
To upload a file, click on the Browse button, select a file from your local computer and click on the Start Upload button. By default the maximum file size is set to 10 MB.
You can change it from the Options button in the upper right corner but 10 MB should be enough for images and documents. This is mostly what the Media Manager is for. If you wish to upload a larger file or many files at one time, it's better to do it through FTP. From the Options button you can also change the allowed file types. By default the list includes the most frequently used image and document formats (e.g. jpeg, png, gif, doc, pdf, etc.).
To insert an image in an article/page, go to the backend's Article Manager (Content>Article Manager) and open the article you want to edit, or create a new one. On the edit/create page click on the Image button under the textarea of the built-in text editor (the default editor is TinyMCE). In the window that opens select the image you want to insert from the ones uploaded in the Media Manager and configure the other options (e.g. image title, alignment, etc.).
To insert a link, in the editor highlight the text that you want to use as a link then click on the insert/edit link button just above the textarea (it looks like a chain). In the window that opens type the URL address for the link. It can be a link to a file/location on your site, or to another site. After you're done with everything just save the article and refresh the frontend of your site to see the results.
For some more information with screenshots read the tutorial on using the Media Manager and inserting images and links.