Hi, I'm new as od 5 minutes ago and just installed serendipity. However, your post caught my eye. The program uploads to serendipity/uploads, makes a thumbnail and html popup for the full image, then you can include it in an entry.
When you are creating or editing an entry, there should be a button on the top right that says "Image." This will (if you have uploaded images) open a new window where you can select an image to include in the entry and after chosing the image you want, another window pops up to give you choices...choose thumb/full size, alignment, and include image or a link. This part amazes me because here serendipity is the best, few do this for you, and only one comes even close...if you don't have the Image button or it isn't working, check your path to ImageMagick or if it is installed on your webserver.
I had trouble with the image showing, and had to make a new upload directory cause uploads wouldn't let me change permissions and it didn't work.