If you've got a particular graphic on hand that you want to use, such as a photographic image, you click From File on the Picture submenu. Then you locate the graphic on your hard disk, server, Web site, or other location, and insert it directly from there. (Note that by default, Word looks in the My Pictures folder.)
By default, the file is embedded directly in your document and saved with it the next time you save the document. If you want to save file size, you can instead link to the picture, meaning that instead of actually placing the file inside your Word document, you add a link to its source. This course won't cover the details of linking to a file, but for more information, you can see Word Help.