There are four causes of pictures not displaying in Microsoft Outlook email messages:

• Internet Options setting for saving encrypted pages to disk (below)
• Blocking external content
• Red X's in Email / SecureTemp folder is "full"
• Word's Picture placeholder setting enabled (below)

Internet Options Encrypted Page Setting

Note: Outlook uses Internet Options settings, not Edge settings.

Open Internet Options, either by typing Internet Options on the start menu or opening it from the Control panel.

Look under the Security section for Do not save encrypted files to disk. Untick this setting and Apply. Restart Outlook and you should be fixed. (If you don't use Internet Explorer, you can go to Control panel, Internet Options or just type Internet Options in the Start menu Search.)

Thanks to William for sharing this with us.

Check the Picture Placeholder setting

If you do not see a red x but have a blank box shaped/sized like the graphic or photo, you have Show picture placeholders enabled. (A great feature if your Internet connection is slow.)

Note that this dialog is accessible from a COMPOSE MESSAGE window, not the main Outlook window!

Outlook 2010, 2013, 2016

These steps work for Outlook 2010, Outlook 2013, and Outlook 2016 (including Outlook which is included in Office 365 subscriptions).

1. Click the New Email button or press Ctrl+N while viewing the Inbox.
2. Go to the new message's File, Options dialog.
3. Click Mail, then Editor Options
4. Select Advanced and look near the bottom of the dialog for the option to Show Picture Placeholders.
   
5. Uncheck the box to Show picture placeholders
6. Close the dialog then close the message.

After changing the settings, close the message. Do not sent it! This, like many other message settings (zoom, etc), will apply only to the current message if you send it. You need to close the message to change the global setting.

In Outlook 2007

1. While in a New message window
2. Click the Office icon
3. Click the Editor options button on the lower right of the dialog
4. Select Advanced from the left menu of the Editor options dialog
5. Scroll down to Display email contents section (near the bottom)
6. Uncheck the box to Show picture placeholders
7. Then click OK to apply and close the dialog.
8. Close the message.

In older versions, this is an Internet Options setting, accessible from either IE's Tools menu or Control Panel. In the Internet Options dialog, go to the Advanced tab. The Show pictures option is in the Multimedia group, about halfway down.