When you upload images from your computer to your iPhone Photos application the images retain their original resolution.
If you take photographs with the camera on your iPhone they are stored in the Camera Roll at either 2 megapixels for the original iPhone and iPhone 3G, 3 megapixels for the iPhone 3GS and 5 megapixels on the iPhone 4.

To email images go into Photos -> Camera Roll and tap and enter an album. Then press the More
option in the top right. Select the images to Email and select Share (See image). A menu will pop up, Select Email.
A new email message will be created from your default email account. Note: To change the email account to send the images from click on From: in the email header. Click From: again and all of your email accounts will be chosen. Select the account to send the messages from.
Complete the remaining fields and enter a message as required. Tap 'Send' and a menu will appear. Here you have the choice to reduce the message size by scaling the images down to Small, Medium or Large. You can also email the messages Actual Size.
Once an image size option is selected the message will be sent.
You can also email images by selecting an image by holding your finger on an image and waiting for 'Copy' to appear, then press Copy (you can email images not only from the Photo' app but also other apps such as Safari web pages.
Exit, and go to Mail, and create a new email message. When you want to insert the images in the message area press and hold your finger on the screen and select Paste to insert the images. The iPhone will keep the images at their full size when you send the message.
Of course, increased resolution means increased file size, in our test case 816KB vs. 104KB for a single photo, so keep that in mind before attaching multiple hi-resolution photos to your emails.