Google mail users can insert images in their email messages by using Gmail Labs new functionality. Gmail Labs has introduced this feature which enables to add images in message body of an email instead of inserting them as attachments.
You can enable this feature by following these steps:

• Login with your Gmail account
• Settings > Labs
• Select Enable for Inserting images
• Click on Save Changes button

By doing this, the inserting images feature will be included in your Gmail tool bar. Now, you can embed images directly from your computer or by using the web URL of images with in your message text of email.

This option is also embedded in Google apps.