So when you select that link and click the button, nothing happens? Because I did that to put that very image in, and it appears to work on my end.

It can work that way. You can click the image button, then type the link in the box, then re-click in the text where you want to insert the image, then click that plus sign. It's been kind of hard to figure, but I might try to make it a bit more clear. Some year.