How to open and edit images in Emacs

Are you looking for something like the Emacs Image Manipulation mode? It uses mogrify from ImageMacgick.

Use Image-Dired.

It is already included in Emacs. Just type M-x image-dired and choose an appropriate directory.

I am not sure what you mean. You can open an image "inside Emacs" just like any other file, just C-x C-f to find it, and C-c C-c to toggle the bitmap rendering.

Code-wise, it looks like this:

(defimage test-image
    ((:file "~/Pictures/greenbug.xpm")))

(insert-image test-image)

Or even simpler

(insert-image (create-image "~/Pictures/greenbug.xpm"))