The new theme uses thumbnails (Or featured images – I will use this interchangeably in the tutorial) and now that WordPress 3 is out there’s a VERY EASY way to do this! (If you had to do it in the past you know how much it stunk!)
Step 1.
Create your post. 
(hehe I am so Capt. Obvious here) Insert images into post.
Click on the “Set featured image” link on the bottom right hand side. (See arrow)
Step 2.
That will pop up a box. Here you will click on the gallery tab (step 1 in the image) which will list all images for this post. Click on SHOW (which is already expanded in the image and is located where HIDE is in the image) of the image you want to set as featured. Once that is expanded click “Use as featured image“. WordPress will automagically crop it etc.
Step 3:
IMPORTANT: Click SAVE ALL CHANGES first!!! Otherwise it doesn’t save. Learned this one the hard way on a larger scale once. :/
Then close out with the x in the upper corner.
Step 4:
Add your categories and tags.
Here’s some info regarding tags and categories. I have changed around the way SEO works on SCD in order to give it a better edge in Google (it’s got a good ranking already but I want it to have more of a ranking for more keywords since it’s got the Google mojo of a few years! Categories are for navigation of users so when you put your category in use these (Use all that apply):
1. The name of your column (make one if there isn’t)
2. Anything else in the category section that fits.
Tags:
The new SEO system uses tags that will be put in the meta-tags of the post thus giving each post special meta tags making google love it even more. (if anyone has a personal blog and wants the info how I do this, I’ll help you out.)
Tags to always put on your post regardless of what it is:
Second Life, Second Life fashion, Second life gossip, second life community, second life business, SL Fashion, SL gossip, SL Community, SL Business, Shopping Cart Disco, SCD, Virtual Worlds, virtual world.
Tags that are always be included but depend on who is putting it in:
Your SL Name, Your column name, and SL Brands in your post that you are wearing.
I know this can be a pain in the arse but it will improve SEO considerably and make your posts get more hits in the long run.
Last step is to hit Publish to finish!!!!
A little bit of extra:
Q: I do not like the way WordPress crops the image for me. Is there any way you can adjust it?
A: You can go to the Media Library and edit the image that is used as the thumbnail. Crop the image and apply the changes to your thumbnails. It’s not accurate and you can only apply to all thumbnail sizes (unless someone writes a plugin for it).
(from the faq on the theme. I haven’t attempted to do this myself)