Every month Gmail releases some interesting lab features to its users. Now you can attach or upload images from the Gmail Compose editor itself. No need to host the pictures in Free Images hosting sites. Either you can upload the images or paste the URL of the image.
For enabling this feature, login to your Gmail account and go to Settings page and go to Labs tab. And look for the “Inserting images” feature and check it enable and click “Save Changes” button in the bottom. Now you will see the “Insert Image” icon in the Compose mail editor. See the screenshots.
Select the “Insert Image” icon:
Uploading the picture: