Inserting an inline image on Outlook.com is straightforward, though you don't have as many options to format the image as you do in the software versions of Outlook.
Your message needs to be in the HTML format (vs plain text) to insert an inline image. HTML is the default option, so you shouldn't have to change it, but to check, open a new message and select the options button on the bottom. If the menu offers Switch to HTML, select it.
2. Place the cursor in your message where you want to put the image.
3. Select the picture icon from the menu below your message. It's on the same menu bar as the Send and Discard buttons. The Insert Picture window will open.
4. Select the image you want to insert, and then choose Open.
5. The image will appear in your message. You're done.