It’s worth noting, the document conversion service doesn’t convert embedded images – which is a pain (and why? They’re available as image files inside the .docx file! Come on Microsoft, that’s craaaazy!)
Instead, you have to insert them as linked objects :
Objects such as images that you add to your Word 2007 document will not appear on the converted Web page if they are embedded in the document. To add these objects so that they appear on the converted Web page, first upload these objects to a document library and then insert them as linked objects (from this location) rather than embedded objects in your document.
There are some instructions here, but this is my guide:
First, find your image on your web page. In SharePoint, this might be a Picture Gallery. Copy the image by Right Click > Copy
Go to Word, and Paste > Paste Special…
Select that you want HTML Format :
And congratulations, you’ve inserted a link to the image on the web server, rather than the image itself: