BP Server uses an HTML Parser to parse the HTML for all <img> tags and automatically replace the relative or file paths of the images with uniquely generated content-ID URLs. For example, the <img src="images/loginlogo.gif"> tag is replaced with the <img src="cid:{unique-id}"> tag.
The HTML Parser can also be used to plug-in the generated HTML into an HTML template, similar to the Dynamic HTML. BP Server needs a well formed HTML e-mail template, otherwise it cannot embed images with sendemail.