If you cannot find the upload picture area in moodle, there is a chance that the GD module does not installed to the PHP.
You can check by: Site administration -> Server -> PHP info (if it is installed, you will find the word "gd" somewhere on the page)
If GD is not installed:
1) If you are in Windows platform, go to php.ini, uncomment the line "extension=php_gd2.dll"
2) If you are unix platform, you need to reinstall php with "--with-gd" option
After installation, go to Site administration -> Server -> System paths, change GD version to "GD 2.x installed".
Good Luck! (It can be a big task!)