I strongly advise you to use the methods that the other members talked about since it allows you to avoid limiting the size of your images. However, if you've already gone through the hassle of uploading the picture to CYS and you are still blankly staring at the screen in confusion, you can click the button which looks like a polaroid with green and blue lines.
You will be able to add images to your storygame in the same way you add pictures to your items!