There are several ways to set an image in your prototype:
From the widgets' panel, you can drag and drop the image widget in your screen to create an image component and then:
double click on it to set a new image.
open the context menu and select the Browse option inside the Image one.
click the Browse option under the "Edit -> Image" menu in the main application toolbar when the image widget is selected.
click the Add Image or the dotted square option in the properties panel.
Copying and pasting it from your file system to the prototype; both with shortcuts and with the contextual menus.
Dragging a file in your system and dropping it inside your prototype.
There are two ways of working with images from Prototyper. You can embed one into your prototype or you can make a link to a current one from some location.
These two ways of adding images in the application are made to help you working with your images in your prototype and avoid redoing unnecessary tasks to set them again once modified. For example:
If you have a nice image already finished, you can choose to embed it to the prototype, so it would be there forever.
If you are shaping your prototype and making some nice designs with some other image tools, you can add your work-in-progress image as a link. This means that, when you modify your image from another application, those changes will be translated to the image in your prototype. No need to set the new image again. If you do it this way, your prototype searches for new changes in your image and depends on the location of this image. If you move this image to another folder, this relation would be lost. In order not to lose any images, your prototype saves a copy of your latest image internally and it updates it every time you make a change.
You can learn a bit more by visiting these links: