My first book, THE POSTCARD, has a bunch of images, and I had a hard time figuring out how to incorporate them into my kindle book when I published it on KDP in 2011. So I thought I would share the steps.
FIRST: You must save your Word document as a Web page (.htm)
When you create a Web file, it automatically creates a folder (fld). See below:
SECOND: Insert your images into the Web file you just created. DO NOT COPY and PASTE the images in your manuscript. You MUST insert them. The images are automatically stored in the folder file (fld). I inserted my book cover at the end of my book, Zworsky's Children, as an example.
THIRD: Once you are done inserting the images and are reading to upload your manuscript to KDP, COMPRESS the file.
This is the tricky part. You must select BOTH the folder associated with the html file and the html file itself. You are compressing two files into one.
Right click on your mouse and a new window will pop up. Select COMPRESS.
After you compress the two files, a ZIP file will be created. You can rename the zip file if you want.
Now you are ready to upload your manuscript. Upload the zip file as your manuscript on KDP. When the file is process, you will see the images in your manuscript preview.
Random note: you can switch back and forth from different views of the file such as Print Layout, Web, etc.
I hope that helps. Good luck with your book.