Images can also be embedded in the notebook itself. Just drag an image file into the Markdown cell you are just editing or copy and paste some image data from an image editor/viewer.

The generated Markdown code will look just like a "normal" image link, except that it will have an attachment: prefix:

In the Jupyter Notebook, there is a speciall "Attachments" cell toolbar which you can use to see all attachments of a cell and delete them, if needed.