You can specify that thumbnail images should be shown while you are editing the content. This is simply a feature for you as the author, allowing you to scale all images down to 48 pixels high (if the original size is larger than that). This lets you see more content and less of your images as you edit topics. The images are only scaled for your editing purposes; they are not
How to show images as thumbnails while editing
In the local toolbar of the XML Editor, click the down arrow of the Show tags button
. Then select Show All Images As Thumbnails to add the check mark next to it. (If you select this option and the check mark is removed, images are shown in their full size again.)
OR
Note: In addition to showing images as thumbnails while editing, you can also show images as thumbnails in output. See Showing Images as Thumbnails in Output.