1. Click Reply in the discussion
  2. Click the image icon (looks like a mountain)
  3. In the Image Source window click Canvas, My Files, Upload File and browse to the file. Type a description in the Alt text, then click Update:

  4. Make other changes to your discussion post as needed, then click "Post Reply".

Here is the official Canvas documentation:

How do I embed an image in a discussion reply as a student?