Naive question about the image directive

This may be rather a silly question but at the moment I can't get the
image directive to do anything useful for me.

The documentation shows the syntax as:-

    .. image:: picture.png

and says: "The URI for the image source file is specified in the
directive argument."

So, does that picture.png have to be a full URI or what?  ... and
where will the picture.png file be exactly?

All I can do at the moment is get to see the text "picture.png".

-- 
Chris Green

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