Add image to blog post

My question is so simple for all of the Developers. I am just a owner of a website that I have to now manage and develop as my desgin agency is no longer operating and I have taken over. I am creating post pages and want to include the thumbnail image. How?
On the “Single Post Layout” in the themes I have to have some type of image with my post. I have selected “Single post with small preview image (featured image)”
How do I insert/attach this image?
My published blog post has an ugly grey pencil image at the top of each page.
On the News Page (blog post feed) I have a list of Posts and the same ugly grey pencil next to every post.
Thank you