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Many bloggers wants to change and edit images inside blogger templates but many of them are confused where to add a web hosted image to a blogger or to a free blog template.Follow below steps to add or innsert  images in blogger templates

• Download the Blogger Template  associated with that image files from free  professional looking blog template designs on the web.
• Upload yours  images files to the web. you can find more then 20 plus  free Image Hosting Websites which are used by blogspot user for uploading images inspite of these you can use blogger.com,googlepages.com ,picasaweb.google.com ,provide  services that gives you a unique URL that directly points to the full-size version on the web PhotoBucket or ImageShack are  common among among bloggers.
• Now the main part is to place yours uploaded image inside blogger templates for this Open your template and search for .jpg or .gif or .png by pressing Ctrl+F  to find the locatioin of the image in the template if it is large in size. You will reach text like the one below:

  #main {    width:500px;
   background:#fff url ("top_main_bot.jpg") no-repeat;
  margin:15px 0 0;
   }

• Replace these image file names with yours File name. Remember to check whether you are placing yours file name at right place or not ,after yours edite in code the above code will look like below code.

  #main {    width:500px;background:#fff
  url("http://blogger.com/top_main_bot.jpg") no-repeat;
   margin:15px 0 0;
  }

After placing yours  image file name in template code , preview the template before you go for save, If  preview layout looks as expected then save the template and you are done with replacing image inside blogger templates.