A new Gmail Lab feature finally allows you to insert images into the body of the mail without having to use the attachment option. You can now put images exactly where you want them to appear instead of adding messages like “see attachment #3”.
Just go to Settings > Labs and enable “Inserting images”. Once enabled, a new icon will show up in the rich text editor.
You can insert images either by uploading them from your computer or providing the URL of the image. Remember that Gmail doesn’t show embedded images by default, so receivers will still need to click on "Display images below" or "Always display images from ..." to see images you embed.
[via Official Gmail Blog]