This is a demonstration of the combined Flickr and media functionality that is built into WordPress 1.6 and WordPress.com. It shows how to use a tag to search for a photo from your photostream on Flickr, drag it into the Post window, align it, and resize it. You must view the Original Size image to see the animation.
To enable Flickr functionality on WordPress.com, you've got to put your username into the "Flickr Username" field on the admin's Profile tab. (Make sure you spell your name right, since there is currently (2005-11-02) a bug that prevents you from changing it after it's already set to a correct name.) If you're using Internet Explorer, you should check out this other animation, since IE doesn't support dragging like Firefox does.
Note that I chose the Medium size because I wanted to resize the photo in the content and have it still look good. When you resize a thumbnail, the enlarged picture looks grainy, so you should select a larger-sized photo when you intend to make the photo larger. If you just want a thumbnail that links to the photo on Flickr, you can leave the setting as-is. Be aware that larger-sized photos take your site visitors longer to download.
I wrote the code that interfaces with the Flickr API and puts the photos into the browser. Andy Skelton (aka skeltoac) built the core media browser functionality.