Just what it says. I tried dragging in images, and hitting the "image" button, but all the button did was post my post...
What do I do?

I think you may be confused on how images are posted. You actually have to have the image already stored on the internet, not on your hard drive. You can use websites like imagebucket to hold your image and then use its URL to post it here. Your image code will look like this:

Uh oh... looks like the code tags don't work. I'll report that in the bug reporting place.