The Inline Image Block is a special block that allows you to insert an image into your other blocks. In the old (TinyMCE) Classic Editor, you could add an image into your content by simply clicking the Add Media button and uploading your new image. With the new Block Editor, none of the blocks have this Add Media button (except for the Classic Block), so to insert an image into your content, you need to insert an Inline Image Block. The Inline Image Block can only be inserted into certain blocks, such as the Paragraph Block, Heading Bock, List Block, Quote Block, and a number of other blocks.
To insert an Inline Image Block, place your cursor where you would like the image to appear, and then using the Block Inserter at the top of the page, select the Inline Image Block. Once the image popup appears, select your image and then click the Select button to insert the image into your block.