Not only do images / photos brighten up posts and make them more interesting and appealing they also can bring lots of referrals to blogs.
My celebrity blog has been running for 237 days and has now had 148,969 referrals from Google Images (see below). This averages at about 628 per day since starting the blog from scratch.

I don't get anywhere near as many referrals for Mikes Money Making Mission, as I've only really been adding images conscientiously since I altered the page format. I get about 5 per day - and every little helps!
What I have found is that images have to be presented in a certain way. I say this from personal experience and 'experts' may disagree!
(1) The image should have a proper name. By this I mean it should tell you what the photo is about. Many people seem to give their photos numbers, like 1028.jpg, or some other code instead. If we take the example of the photo on the right the name is Kirsten Haglund bikini. This makes more sense to the search engine.
I'm using Kirsten's photo as she is the new Miss America and I might just get a few hits because of this. Blatant promotion!
2) Use the 'alt' option. In this case I have used alt="Kirsten Haglund, Miss America, bikini".
I've used these words because I consider them to be the keywords that people will use when searching. They may well use Kirsten Haglund or Miss America and I've added bikini because I think this is likely to be used together with the aforementioned names.
I always try to use the name of the photo within 'alt' and sometimes add a couple of extra words that tie in.
3) Don't overdo the number of keywords included in 'alt' as this makes search engine's think, "Mmmm, spam!"
And that's it. Some say that including the size of the photo is search engine friendly i.e. height="200" width="100" but I'm not convinced of this.
Think post - think images!
Good luck,
Mike.