You can do both. For uploading from your computer, if you start a new thread or use the "reply" button, at the bottom you will see an pic upload tab. Browse for your pic, select it then click the "attach" button. The size restriction is 640x480.
You can use any photo storage site to hot link your pics. Most of the good ones (photolocker.net, photobucket.com) host your pics and display the bbcodes so you can copy and paste them directly into the thread.