As instructed in the moodle 2 doc (http://docs.moodle.org/en/File_system_repository_configuration), I create the new file system repository under the FTP root in moodledata/repository, and I FTP all my files up into it figuring great, a place to keep documents, images, and related files, and keep them all synchronized.
I then create a page (html page) and use the tinyMCE image icon to access the File Picker, and put an image file in place. I put this same image file into place in several other pages where I need it. The html source for this looks like:
<p>repository image: <img src="http://mymoodledomain.org/draftfile.php/13/user/draft/932040976/test.jpg" /></p>
I then realize I made a mistake on this image, so correct the mistake and FTP it back up overwriting the bad one in the repository. Then I open my html pages to see how the new image looks, but nothing has changed. Well that is pretty painful, so I guess I have to select the old image and use the File Picker to reselect the new so the new will re-appear.
Whoops, when I try to do that, I get a pop-up error box that says: "File exists" and it won't let me put in the new file. That is crazy, I don't want some hidden copy of an old file, I want a link to my repository files! Well this is now really painful; do I have to rename the file everytime I change it on all 3 pages? What if I put that file on 30 pages?
Realizing the File Picker method is not acceptable, I figure I could just put direct image source links into the repository created following the moodle 2 directions. However, this repository is not directly available to http as it is not under the http root.
So, back to the drawing board; I discover where the http source directory is via FTP (public_html), and create my own folder to hold my own files, then again FTP my files up there.
Then using an offline editor (Kompozer) I build my 3 pages. I paste the html from that into the moodle site so that the html source for this image looks like:
<p>myfile image: <img src="http://mymoodledomain.org/_my_files/test.jpg" /></p>
This works fine and the image shows as before. But, when I then realize I made an error, or want to change the file, I simple overwrite the file via FTP, and viola, all my html pages that use this image immediately reflect the change!
Now things work the way they ought to!