If you look at Google's Gmail editor toolbar, you might notice that there is no option to insert an image (whether photo, picture, or whatever) into your Gmail message, unlike let's say, on PHPBB forums where there is a picture icon for you to enter the URL of the image.
Turns out it is almost embarrassingly easy, if kinda not-so-obvious at first sight, to insert an image into Gmail. All you need to do is to open the image or photo in another browser window or tab (whether you're using Mozilla Firefox or Internet Explorer), and just .... drag and drop. And voila!
See the screenshot above. It works for me, hope it works for you too.