It announces to the browser that an image will go here on the page. Yes, the image will pop up right where you write in the image tag.

SRC stands for "source." This again is an attribute, a command inside a command. The value of the src attribute is the URL of the image you want to display on your page. It's telling the browser where to go to find the image. Again, it's best for you to place the images you want to use in the same directory as the page. This way you can call for the image by name alone. If you start to place your images all over the place, you'll have to start adding directories and sub-directories to the SRC attribute. And at this point, that is way too confusing. Just place the image in the same place as the HTML document that will call for it and then call for the image by name alone. You can get fancy later. Right now, let's just get it to work.

image.gif is the name of the image. Notice it's following the same type of format as your HTML documents. There is a name (image) then a dot and then there is a suffix (gif).

ALT stands for "alternate text". This tells the browser that if it can't find the image, then just display this text. It also tells anyone who can't view your image what the image is about. For example a disabled user using a screen reader, or dare I mention it, Search Engines.

gif This is pronounced "jif" or "gif" (hard "G") depending on whom you speak to. I have always said "jif", like the peanut butter. This is an acronym for Graphics Interchange Format. The format was invented by Compuserve and it's very popular. The reason is that it's a simple format. It's a series of colored picture elements, or dots, known as pixels, that line up to make a picture. Your television's picture is created much the same way. Browsers can handle this format quite easily.

.png .png Pronounced as 'ping', this stands for Portable Network Graphic. This is ultimately the replacement for .gif, with partial transparency options, but browser support is sometimes disappointing, so try experimenting but don't expect miracles in older browsers! Even some of the newer ones don't like partial transparency.

.jpeg or .jpg (pronounced "j-peg") There are two names to denote this format because of the PC and MAC formats allowing 3 and 4 letters after the dot. JPEG is an acronym for Joint Photographic Experts Group, the organization that invented the format.The format is unique in that it uses compression after it's been created. That's fancy computer talk that means that when the computer is not using a .jpeg image it folds it up and puts it away. For example, if the picture is 10K bytes when displayed, it may be only 4K bytes when stored. Nice trick, huh? It saves on hard drive space, but also tends to require a bit of memory on your part to unfold the image.Someone always writes to me to tell me that .gif images also use compression. Yes, they do, but only when they are first created into that format. After that, no compression. JPEG, on the other hand, uses compression throughout its life to fold up smaller than it really is.

.bmp (pronounced "bimp") This is a "bitmap." You will probably never place a bitmap as an image, although now Internet Explorer browsers allow it. A bitmap is an image that a computer produces and places for you. A counter is an example.
Even though Internet Explorer will allow you to place an image as a BMP, I wouldn't. No other browsers will be able to display it. Go with .gif or JPEG.