If you have an exercise containing image(s) in the prompt, you can upload an image using the button on the edit form. However, you can only upload one image.
If you try to add a second image after adding the first, the second image overwrites the first one. You have to upload the first image and then save the exercise. If you edit the exercise, you can add a second image, but only one at a time. You must save the exercise in between. Exercises with multiple images cannot be entered in one edit, but require a separate save action for each image included.