I've run into a very strange problem. I can drag and drop images into the content section of pages, labels, etc and the dragged image displays properly in the content editing section. However when I click Save and Display, the images are not displaying and when I go back to the editor they are gone.
I'm running Moodle 3.5.1+ (Build: 20180817) with the Fordson theme. What is particularly odd is that I've got a virtually identical instance running on the same VPS with the same theme and almost all of the same plugins and the drag & drop functionality and saving works perfectly.
I suspected it had something to do with one of the Atto editor plugins and sure enough after I uninstalled the HTML+ plugin for Atto drag & drop started working again! To be fair the plugin hasn't been updated since 2015.
I'm not sure when it stopped working but I thought I'd pass on this in case someone else had the same issue.