To insert an image into a Civi Mail, follow the instructions for Inserting Images into a page. This uploads the image into your folder. Then copy the url. You need to have the full url ie starting http://www.livingstreets.org.nz/..... You don't need to save the page.
In your Civi Mail click the Insert image icon, paste the url, and format the image (alignment, spacing etc). You can always do this later by right clicking on the image in the mailing.