PAF CAN use the images in many of its printed reports. Most reports and websites created by PAF will use the "default" image linked to individuals. These are REALLY neat! Try doing a pedigree chart or family group chart using the default images. This works best if the default image is a "mug shot".
Some word processors show the images in the RTF files generated by PAF when you use the Print-to-file option. My old Microsoft Office 97 is good in that respect. Newer versions may not. Try using PAF's Print Preview to see how the reports will look with photos.
If you print a scrapbook from PAF, I believe it will include all of the photos for the person.