Step Two
The picture dialogue box gives you two options.  The first is to select from pictures already used in the FrontPage web.  The second is to select one from a file on your computer.

Step Three
Your images need to be saved as part of your web page.  If the files are not saved as part of the page, they will not show up on your web site.  When you save your web page, FrontPage will ask you to save your images as well.  Make sure you select yes when the embedded images dialogue box comes up.