This is a very common thing to do, and with a little care and prevention of common mistakes, you can upload very clear images.
First, in your ‘edit’ window, select “upload/insert”
Then, choose ‘Select Files’ and navigate to “Photos” in the Finder popup bar under Media
Choose the photo you want from your iPhoto library, and after it loads, you will see these options (if you scroll down):
THIS IS WHERE IT GETS IMPORTANT. Select the image size you want (thumbnail, medium, large, full size) before you select “insert into post”. If you select it too large, you can always reduce the image size later. But if you choose the default (Medium, 300×225) and then try to enlarge it later, it becomes very fuzzy.
HINT: You should pretty much never choose “full size”, as you cannot reduce the image size to get a bunch of photos to the same size. Reductions are given as percentages, so unless the images are all standard sizes beforehand, you can never get them to be the same dimensions later.
Once you select the size, hit ‘insert into post’ and Bob’s your uncle.
If you want to reduce the image size later, in the edit window, click on the image and choose a percentage of the original size. DO NOT OVER-REDUCE, as you cannot enlarge again later.