The current image handling is minimal, there is no rescaling a all and the full image is simply scaled to the width of the post.
This works well until you have images that are wider than the 640px available for posts. There are two important categories of images that pretty much always break this limit: Pictures taken with a digital camera and screenshots. Sites that would benefit from an improvement here would be especially Photo.SE, Arqade, DIY and other image-heavy sites.
The current result of this for inexperienced users is that they put the full-sized image in the post. This means a waste of bandwith for everyone looking at it, and also makes the full-sized image not accessible to non-technical users.
An experienced user will rescale the image before uploading. This takes more time and also makes the full-sized version of the image unavailable for everyone.
A very experienced SE user can work around the whole thing and use the automatically created thumbnails from imgur to create a preview image linked to the full-sized one. This is only known to very few users, it is not discoverable and quite a lot of work.
I'll use a project from a developer that is rather well-known around here as an example how the image handling could be done better: Improved Image Handling in Discourse.
When uploading an image
- it should be rescaled automatically to the width of the post
- the image should be linked automatically to a lightbox (or to a new tab) that will show the image in the maximum possible size on the screen.
There should be no need for a user to do any manual work, this should just work automatically.