Inline Image

I am using the 1.9 version for Windows and wanted to include an inline image in my Story Item Template (describes an item or object that is important in the story). I noticed there was an option Edit | Insert | Image Linked to File but when I use it nothing happens.

I was hoping to leave that image out of my Scrivener project, since I use a project template that includes some folders OUTSIDE the Scrivener project folder, I run no risk of stale image links.

Why is that option there (and enabled) if it does not work?