You could use some picture software to resize the image, then try to attach through the forums. Or as was said, upload the photo to photobucket, which will automatically resize down to 800x600 resolution, then post the URL in between the img tags.
Yeah, the paper clip allows you to upload from your computer to the forums. But if your file size is too big, then you'll get that error message which will require you to reduce the size of your file before you can upload.
Well I just reduced it but it was really small and it had more white around the picture than the size of the picture itself. This doesn't seem that easy or I'm just computer illiterate.
Indeed, it links to a picture. However, if you're just looking to put the picture in the thread, bracket the address as Pen_Two described, and the picture will appear in the thread, so no link will be required to view it.