Hi, Vivian! Maggie is right in that you can add Images to Event, place, Parent or Child in the report (althougho I think she used TMG "lingo"--grin). I do recall having some problem with JPG extensions and had to save mine to TIF. I just went through the steps of adding one on my computer. You must remember that the options are dim unless you have Rich Text Format (RTF) option set in the Page Setup window, too.
I went to Event to add my picture. Then Media New Media Digitized Image File Located the file on my hard drive. Put in the name, date, etc., Clicked okay. Then it took me to a new window. Clicked preferred, etc. and added scription... Clicked Preview (could see it). and then OK.
I don't see anything in the manual about format of picture; but I'm guessin that you will have to use TIF--sort of difficult these days when we get lots of pictures on the internet in JPG format. :)