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If the button "Upload Image" is disabled and not clickable, it means that you might not have permission to upload images within that folder. If you select one of the folders mentioned above, the "Upload Image" button becomes active.
When using a URL to a remotely hosted image, the image will always be visible in the message, regardless of changes in the console. Instead, if you insert in a newsletter called "A" an image that was saved in the folder of a newsletter "B", and then newsletter "B" is deleted, the image won't be seen in message "A", because the location points to the folder of a newsletter that no longer exists.
For more information about images and the storage space that they take up (which might lead to additional charges), please see How do I free up storage space?.
Of course, no storage space is used when you use images that have not been uploaded to the system, but rather reside in a remote location (e.g. an "images" folder on your Web site). For this reason, using remotely hosted images is often a more preferable option. However, make sure that the host is capable of handling the potentially numerous requests that may occur when your email message is opened by recipients (i.e. thousands of recipients opening the email and requesting to download the images that it contains).