Walter,
None of this will make any sense unless you are using at least version 1.2 Dev. of Moodle. A new and greatly improved HTML editor has been added. You can now actually upload a file directly into Moodle via the editor. Notice the Browse... and Upload buttons at the bottom. If you see this, place the cursor in the field next to the Browse.. button and then click the button. This will open the directory window on your computer allowing you to locate the desired resource. Next, simply click Upload and the resource will appear in the File Browser area of Insert Image. My suggestion that you upload all resources in advance referred to using the Files feature, available in the Administration panel on the course homepage. Experiment with uploading elements you use in the course here.
Bryan