The IMG tag can be placed anywhere, including in the "text to click on" part of a hypertext link. Just like placing text in this location causes it to be "clickable," placing an image there does the same.
The general syntax for creating a clickable image is:
<A HREF=URL> <IMG SRC=image_URL> </A>
As an example, click on my image below to advance to the next file (ex7c.htm):