Google has recently launched a new feature called ‘Inserting Images’ in Gmail labs that lets you add images in message body. To enable this feature go to Settings > Gmail Labs and enable it from there. Once enabled, you will find an Insert Image option while composing a message as shown in the screenshot below.
Click Insert Image and it will ask whether to add an image from computer or a web URL.
Once an image has been added, you can resize the image and position it by dragging it across your message.
Please note that this feature is not enabled by default, you have to manually enable it by going to Gmail labs. Also note that the recipient will only be able to view the image if he/she either clicks “Show Images From..” or “Always Display Images” links. Enjoy!