So here you are: you need a graphics programme preferably (although I have done it in Word, but it's very long-winded).
This is showing my logo plus the image, and also shows the logo in postion, where I dragged and dropped it. You'll see in the bottom box on the right that it shows as a separate layer.Create a new document with a logo or piece of text (your name, blog name etc) and save this as a small file, 96dpi and a maximum height of 60 - 100 pixels (or you won't be able to see the artwork). Save this as a png file, which means it will have a transparent background. You'll use this as your watermark.
Open the image in your graphics programme, and create a duplicate or do Save As and give it another name. (This way you are not saving the watermark on your original image, which you may need at some point.)
Reduce the Image Size of the copy to between 72dpi and 96dpi and around 420 pixels (say, 7 inches in height). You'll probably find this in your Edit section.
Create a text layer or drag&drop or copy&paste your logo onto your image (depends on your programme) OR create a text layer and type in your name, blog name etc if you don't want to create a logo.
Save as a jpg - this automatically flattens the layers (although you can flatten the layers first if you'd rather).
That's it! You can now happily load up your image knowing that the watermark is cleary displayed for anyone to see.
MY FREE COPYRIGHT
If you are really worried about someone copying your artwork, you can also do this: click on the MyFreeCopright logo you'll see in my sidebars and open an account with them. It's free. It's also admissable in courts of law should you ever need to sue anyone for breach of your copyright. Every time you write a post, they email you with a copy which has been saved in their records - so all you need to do is archive that email, and you're covered.
DISABLE RIGHT-CLICK COPYING
The other thing you can do is disable right-click copying altogether, which means a little meddling in the html of your blog. You can't change your mind though, should you decide to offer freebie pix for example. You can re-enable the right-click copying, but you can have it turned on or off - you can't choose to do it just for certain posts and not others.
Here is an excellent tutorial on the subject from Easy Custom Blogs which explains exactly what to do.
I hope this helps!