Tommy Khajiit adding images to books and scrolls
Putting illustrations in books is quite easy really. Make a square image 256*256 pixels and put it in data files\bookart. Add the following code to your book:

The images should be in .bmp,.dds or .tga format.

In game this looks like:

Because dds 3 format supports transparancy, you have a lot of freedom regarding the shape of the visible part of the image. The canvas itself has to be a 256*256 square though.