Here is the official Canvas documentation:
Here's a more direct set of steps If you have a picture file on your computer that you'd like to upload into a discussion reply:
- Click Reply in the discussion
- Click the image icon (looks like a mountain)
In the Image Source window click the Canvas tab, click My Files, and click Upload File. A window will open. In that window browse to and select the picture file. (The exact steps for browsing to and selecting depend on your operating system.) Once you've selected the picture file, you'll be returned to the screen below where you type a description in the Alt text, then click Update:
Make other changes to your discussion post as needed, then click "Post Reply".