Typically this is caused by your directory permissions settings. Make sure that your /wp-content/uploads/ has rwxr-xr-x (755) permissions.
Also, please check that under Settings -> Media that the upload path for files is set to ‘wp-content/uploads’.
If the image is still not uploading or you get an error about the file not being copied, we suggest you check that ‘safe mode’ is switched off on your server. you may need to check this with your host.