Find the "Attach" button-- should be on the top when you're composing a message. Far as I know, that the only way to get pix into (onto) a Hotmail email. Hotmail has become increasingly user-unfriendly (IMHO).
I don't know if it's possible anymore to put the pix into the message, like an illustrated story. For something like that, you might just have to write the piece, with pix all word-wrapped and in place, in Word then attach it.