Is it possible to put pictures in the text of the email, or do I have to attach them? How do I do this, if it is at all possible?

If you want the picture to be inline you have to have web hosting somewhere (such as geocities). Put the picture up on geocities then copy it and paste it into the gmail compose window (with rich text formatting on) then you can resize it etc.

http://img222.imageshack.us/img222/7363/imag01436pg.jpg