^^ Pretty much explains it.

 

Can I use a file or does it have to be URL?

upload an image to fileholding site like imageshack or photobucket then get the image url for it. in your siggy editor you will see a but called "image" click that and paste the url for the image then hit ok and there you go

Click on the drop down menu on your username on the right hand corner. Click on My Settings, and on the left should be "Signature" a typical text box should appear. There, you can copy and paste your image (either the link or actual image--I do the actual image) and then hit save, and then you're done. Simple as that.