I was thinking something like:
"You can also make an image a link. Here is an example of the code to do so:
<a href="http://www.example.com"><img src="http://www.example.com/image.jpg" border=0 width=x height=y alt="my image" /></a>
*insert border explanation here*
Note that any images you would like to use in this manner must be uploaded to a webspace provider that allows remote loading. Please see http://www.livejournal.com/support/faqbrowse.bml?faqid=130 for information on image loading requirements."
Edit: change FAQ 6 to add the height and width attribute explanations, then add the border attribute explanation to the bit I wrote above,
How do I add images to my journal entries?
To add an image to your journal entry, use an "img" tag where you want it to appear:
Within the code, "http://www.example.com/image.jpg" must be replaced by the actual URL of the image you want displayed in your journal entry and "title or description" can be changed to give the image you use a title or description of your choice. Width and height are, respectively, the width and height of the image in pixels.
Any image you wish to add must first be uploaded to a webspace provider that allows remote loading. Please see http://www.livejournal.com/support/faqbrowse.bml?faqid=130 for information on image loading requirements.
(feel free to modify my wording, it's 4 am and this was inspired by a support request ;) )