I use Imgur and open the picture, the link to which will be a URL ending in .jpg which you can put inti the [IMG] tags (insert s m or l before .jpg for the appropriate size).
lapushka as far as I understand it's mainly if it's from someone else's website. I would imagine if you're hotlinking your own picture from your own website, which you pay for and know how hotlinking works and are happy with that, that would be okay? The issue is often hotlinked images would be from non image hosting sites and use up bandwidth (and costs) without the owner's consent.
Edit: and just seen akurah's post mentioning T&Cs, I hadn't realised that was an issue as well.
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