A more comprehensive instruction than is included in the FAQ:
1) In your user cp, Go into 'edit options', scroll all the way to the bottom, miscellaneous options. If it says 'basic editing' change that to 'full WYSIWYG' save change.
2) Next go to 'edit signature' enter the url or if you'd rather you can browse and upload from your pc (options 1 and 2 pictured below). Then in the panel above, where your signature appears, click on the link 'insert signature picture' . Save and exit.