Let's say person A have a website named www.asite.com, and an image in www.asite.com/images/example.jpg.
Now, someone else (person B) uses this image in his/her website with <img src="www.asite.com/images/example.jpg"></img> code.
Question is, will A's PageRank improve?
Not at all. A's PageRank is not improved. Links to website A (with <a> tag like <a href="http://www.asite.com"></a>) improve PageRank.
Moreover, there is a bad thing for website A because website B uses the bandwidth of website A and thus can slow down the browsing of website A's visitors.
Some black hatters believe it helps site authority and trust
Technically speaking it is not classed as a direct backlink however many believe (mostly black hatters) that IMG embedding does improve the authority of a domain because Google does have the ability just as any other tag like with text, video and audio to associate the content to the original site that was first seen with this content.
Some black hatters will try and get any sort of link they can for a great link diversity. Anchor text, Raw Link, Img Link, href with Img without ALT, href without alt and the list goes on...
Some white hatters believe it helps local search results
On the white hat front it is 'believed' that using images on 'Citiations' sites helps local search rankings, even when not embedding the IMG using an external source. This is because Google learns what content belongs to you... exactly the same it associates your TEXT based content. It's worth mentioning that its important to look at images as TEXT too, just as text they are unique and even in resizes, crops and other minor changes the files are very a like and can be scored with uniqueness value and be tied with the originating site.
We know more far about Colonel's secret herbs and spices than we do about Google's algorithm
It's a highly debatable topic and something you're have to research and make your own 'decision' because the way Google works out site authority, pagerank and actual ranking's is top secret, and not something we can easily put under the microscope unlike the Colonel's 11 secret herbs and spices ;).
It's important to note that Google's algorithm is constantly changing and in some many ways learning.
Summary! Establish your own decision based on dozens if not hundreds of opinions ;_).
