Before you can use an image in WoG Editor you must import it into the Resource List. To do this click the Import Images button and select the file (or files) you want to import in the standard file dialog.
Each file that you select will be given a unique id and added to the resources list, if it's not there already. The id will be automatically generated and will be something like IMAGE_{FOLDERNAME}_{FILENAME}
When you edit the image property of any object, a list of the ids of all the image resources will be displayed.

Image File Format

World of Goo uses png files for all its graphics. It will accept any "flavour" of png file (paletted, grey-scale or 16m colour) and supports both alpha-channel and single-colour transparency.

Importing "external" images

All the image files that World of Goo uses must be located within (or below) {Game_Folder}/res/ If you import files from anywhere within this folder then WoG Editor will just add the filename and id into the resource list.
However, you can import images from anywhere on your system.
If you import files from outside the res folder WoG Editor will take a copy of each file and place it in the [Level Folder], and add the copies into the resources list.

Note on Images for Mac

On Mac, World of Goo uses graphic files in a "non-standard" and substantially different format Details here. GooTool will convert standard png images to this format when it installs a level.
(TODO: State whether GooTool will also convert jpg renamed as png correctly on Mac)