Yes, you have to upload the images and email template somewhere online.

What I did was put together an email template in Adobe Dreamweaver using images I uploaded to my website's directory. You must load the images into Dreamweaver from their location online and not from your computer. Then I'd save the Dreamweaver file as an HTML file and upload it to the same directory(it doesn't have to be the same one). Then I navigated my browser to the address of the file, copy the entire page and paste it into an MS Outlook compose message. There is probably an easier way but that's what worked for me.

HTH