Not really any 'limit' except your bandwidth will take a beating if the images are too large.
Also, large images will be slow to load for the clients.
yes, you should make room for the image on your page, otherwise the image will push content down or sideways and mess up the lay-out.
Change the filename.jpg to the actual name of the image you use.
Adjust the width and height to suit your site placement. These sizes are the size on the page. The image could be smaller or larger to start with.