On the settings page for the activity, click the image icon on the text editor ribbon

Click Browse repositories

In the file picker, click Upload a file

Click on Choose File and select the file from your computer

Click Upload a File at the bottom

In the box labeled Describe this image for someone who cannot see it, add your alternative text. If you do not, there will be a warning that pops up:
"An image must have a description, unless it is marked as decorative only.."

Select This image is decorative only when an image is used for visual effect and doesn't provide any important information or context

Change the size of the picture if required. Make sure the picture isn't larger than necessary

If you adjust one of the boxes and then click on the other box, its measurement will automatically resize. However, if you want to disable this feature, you can untick the checkbox labeled Auto size next to it

Select the Alignment. This is based on how you want the image to align with any text that you are going to include within that text box. Alignment Left means that the text will wrap to the right of the picture

Select Save image at the bottom