If you have pictures on your computer you can upload them or from a source that you download your pictures from. Media library will store all the pictures that you upload.
If your theme has drag and drop, this makes it much easier especially if you are like me and take a lot of screen shots or if you have a file on your desktop with images.
Instead of having to hit upload, you can just grab the image (if it is hanging out on your desktop or if you have a image file open) and drag it to this screen.
For screenshots I have a tendency to just leave them on my desktop until I am done with my post and have edited it. Then I will delete them. You don't want to use the same picture twice.
You can see the image I chose as it has a check mark in the box, The other arrow is pointing to Edit Image, You can change the size of the image there.
If you are not using drag and drop and do not have images already in your media library, then you will want to click upload image.