There are several areas that you'll need to visit to setup attachments; we'll cover them all here, including inline embedding of graphics.

The Configuration
First, you'll need to create a new directory on your server, and make it fully writable by the webserver (chmod 777 in *nix), we'll assume this is named "uploads" under your ubb install directory. (forums/uploads).

Secondly, you'll need to know the full filesystem path (the "relative" path will not work here) to this directory, it should be something similar to:
/home/ubbcentral.com/public_html/forums/uploads/
-or-
c:/htdocs/ubbcentral.com/public_html/forums/uploads/

Now, there are a few places you'll need to visit in the control panel, firstly, we'll want to set our "max inline image size"; this setting will allow you to set how large of an image you'll want to display embedded in your forums when a user preforms an upload.

Go to:
CP -> Display Options -> General -> Primary Tab -> Topic Display Options -> Max Size for inline uploaded images

The setting is in bytes, 1048576 bytes is one megabyte, however I would recommend not allowing images over say 50000 to be displayed inline (keep in mind that in this age high speed internet lines are the norm, but there are still slower connections so it's good to be courteous and to keep in mind that most users will upload more than one graphic and numerous users may upload graphics as well).

Now you'll want to set your general attachment settings:
CP -> Master Settings -> Feature Settings -> Attachments Tab

1. Attachment Storage Directory - This is the directory we created in the first steps in this entry, this is a full server path to your uploads directory.
2. Full URL to Attachment Storage Directory - This is the URL (web-address) to the directory we created in the first steps in this entry.
3. Allowed Attachment File Extensions - What filetypes do you want users to be able to upload? (Default: .gif,.jpg,.txt,.zip,.png)
4. Maximum Attachment Size - This is the max size you want users to be uploading, specified in bytes (1048576 bytes is one megabyte). This is a PER FILE setting.

The Usage
When creating a new thread or response, you'll see a "File Manager" link on the "Full Reply" or "New Post" page. When selecting this option you'll receive a popup which will allow you to attach files to your post.

Steps:
1. Click "File Manager" to bring up the "Attachment" window.
2. Click "Browse" to bring up the file browser window; this will allow you to browse your computer for any files or images you wish to upload; please note that you're bound by whatever the "allowed file type" setting is in the control panel.
3. Click "open" on the file you wish to upload.
4. Enter a description of what the file is (if you want to).
5. Click "add file" to add another file, or "done" to close the window and complete your posting.

Please note that you must enter some text in both the "subject" and "post" fields when responding otherwise you will receive an error; you cannot just respond with an attachment ;).