You would be using the Markup Editor. Steemit is not that well designed and at times confusing. When you first start a post, look to the top right hand corner of the content box, under the Title field. There is a link for the visual editor. However, the visual editor does not have the drag and drop feature you mentioned. So then I swap back to the Markup Editor via the link I mentioned. Upload, and then switch back to the visual editor.
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Makes sense @leoplaw. Thanks for the info.