One of the true PITAs of vBulletin.

There's this info in the FAQ/Help section, but let me try expand on that this way:

Step 1: Click the Go Advanced option if you're replying in a thread.

Step 2: Scroll down to below the text post area and click the Manage Attachments button

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Step 3: In the new tab/page... well I've numbered the sequence to chase in the following image.

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Step 4: Once your images are uploaded, Click the Insert Inline button.

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Either the images themselves or the tags will appear in your post area depending on your editor mode. This particluar post looks like this:

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