If you click that, you’ll be presented with a utility to select photos from your Flickr account:

You can search your own photos, or photos posted by other Flickr users. Once you select a photo, you can define the size and placement of the image using the controls provided:

and once selected, the Flickr photo is embedded in a post, like this:

Before using it, you’ll have to authorize UCalgaryBlogs.ca to allow access to your Flickr account – it’s safe, and the plugin walks you through it in the Settings section of the WordPress Admin interface.

Just click the “Flickr authenticate” button, and a new browser window will open, where Flickr.com will ask if you authorize this connection between your blog and Flickr account. You can revoke this at any time, and it won’t add or edit anything on Flickr. If you approve this, just follow the instructions on that page, and close that browser window (or tab) when finished.

Then, just click the “Finish authenticate” button, so your blog will store your Flickr account ID.