Like most other recent enhancements, “insert images” is an optional feature that can be found in Gmail Labs (under “Settings” -> “Labs”). Once enabled, you’ll get an insert image icon when composing a message (if you’re in rich formatting mode), and can then select an image either from your desktop or from a URL.
As Gmail engineer Kent Tamura notes, when you send a message to another Gmail user using an image URL, that user will have to click “display images below” to see them. That’s because as Tamura says “Gmail doesn't show URL-based images in messages by default to protect you from spammers.”
Personally, it’s not a feature I’m likely to use often, because being on the receiving end of many emails that include images, the formatting is often a mess. Nonetheless, perhaps it brings Gmail just one more step closer to finally removing the “Beta” tag from Gmail.
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