I'm afraid there's no image upload feature for the ASP version and Froala so that would be why you get that message. You would need to upload the image via FTP and add the path to the image in the category description field.
For the PHP version check your server PHP installation / settings and make sure you have "fileinfo" and "imagick" available. ITZAP posted a helpful screenshot here https://www.ecommercetemplates.com/support/topic.asp?TOPIC_ID=110209&whichpage=2