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Follow these steps:

In Microsoft Outlook 2002-2003:

* Select Tools –> Options from the top menu in Microsoft Outlook.
* Go to the Mail Format tab.
* Click Internet Format.
* Make sure to uncheck “When an HTML message contains pictures located on the Internet, send a copy of the pictures instead of the reference to their location”.
* Click OK.
* Click OK again.
* Make sure the image you wqant to send is accessible over the internet.
o Place it on your web site, for example.
* Note the URL of the image.
o The URL of an image could be http://www.travelindia-guide.com/images/demo.jpg, for example.
* Insert the image inline in an email in Outlook.
o Go to Insert Menu, Choose Picture, then add the image URL.
* Continue editing the message and send it to the mailing list or individual recipient.

In Outlook Express:

Goto Tools–> Options
Under Send–> HTML Settings–> Uncheck the option “Send Pictures with Message”.
All other steps remain the same as above.

Inline images will not work with Outlook 2007 and above.

In order to get the image URL, you’ll have to first upload the images in a folder onto your ftp.