Where do the image files go in an HTML upload?

Noob here, basically skilled in HTML, I've formatted my first book's text and now I'm adding images. There are many; it's a cookbook!

What I'm lost in doing is figuring out where to store the actual .jpg files when I put the links in the HTML document. Do they go in the same folder as the .htm file?

I have tried that, and it works on my own PC when I use the Kindle Fire Previewer I downloaded from Amazon. But when I upload the .htm file to KDP, the .mobi file I download has a placeholder (camera and "!" graphic) where the 178KB photo was.

This also happens when I e-mail the .mobi to my iPhone and open it with a Kindle viewer, regardless of whether I created the .mobi on my PC or using KDP.

I tried using the Mobipocket Creator steps outlined here, and got the same result.

Any idea where I'm missing an important step? :-/