Well, if you copy the file into the page, and it goes in as, say, c:\mydocs\pics\surfing.jpg, your PC understands that, because it follows the path, and finds the file.
But on my PC, the path doesn't exist, and neither does the file, hence a broken link. So, you could get around this with a link that includes your machine name, like \\vat_man's_pc\mydocs\mypics\surfing.jpg, and then my PC would look yours up and try to find the file. There's a whole permissions thing going on there (would you WANT me doing that? No offence, but I wouldn't if it were reversed), so your PC will try to block mine from accessing that file (what if it were your banking details, not an image?).
But basically, what you need to do is to copy the image to a web server that can handle the request. Either copy it to a server you have, and LINK to the file, or use the GTP facilities to post the image, and then REFERENCE it. If you reference the image, the GTP server will go find it, because it knows where the image is, and can retrieve it.
Does that help?