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The very basics are in the "Help" then "Frequently Asked Questions" links on this site. Note that the image must first be published to a web server; it can't just be on your own computer at home. You have to reference an absolute external hyperlink (e.g. "http://www.whatever.com/images/whatever.gif"). There are lots of free hosting servers out there. Geocities is the oldest I think, but there's tons to pick from now. They offer you the ability to serve your own website with some form of advertising built into it.
As to format, it needs to be saved as either a GIF or JPEG (JPG) format--for black-and-white images a GIF is usually fine if you know how to create one in grayscale. Even a 64-colour GIF usually looks fine and produces a small file. Otherwise a JPEG at a quality setting of about 50%/5 should be adequate and produce a small file.
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