Thank you for the additional details.
1) If you upload the file it is added under Properties > Attachment for that document and a link points to that location.
2) I am not sure what you mean by images are not selectable, but it should be possible to switch to the Media Library tab in the dialog and select an image as you would in the Media Library module. If you could provide more details about this issue we may be able to suggest a fix. Providing your exact version number would also allow us to test more accurately.
Please let me know if I can be of any further help.