Adding Pictures

Can someone tell me how to get the uploading pictures working when adding comments.
I have found the Toolbar. Click on the button to add image.
The URL Field seems to be looking for a path of some sort, rather than browsing for image and uploading.

Others have done it before in other posts, but I cannot figure out how to do this.

I have tried on Chrome, IE8 amd Firefox. The adding pictures doesn't seem to be so straight forward..