Where do you upload images on a wordpress site?

WordPress images are stored in your wp-content/uploads folder no need for storing in the database, only the img uris get stored there.

When you create an new wordpress post or page with your text editor you will notice several icons above it, use the first one to upload images and it will give you the option to add it to your post.

Its realy very simple but there are other things to take note of before you do this like setting images sizes etc, i suggest you read up on the codex for image handling..