To insert an image from your Google Photos or from the web to your mail merge template, you need to Right click then choose "Copy Image Address".
In Google Photos, first click on your photo to bring it to full screen.
In your Email template choose Insert image. Copy and paste this link in the source field then click OK
NB: Do not copy and paste the URL in your browser as this will only copy the link to where your image is stored, not the image itself.
To insert a hyperlink to the image, click on the image in your email template then choose "Insert link" and paste your Url
Recipients who click on the image in their email will be directed to this url
Your image is now ready to be emailed!