The Image Picker in the Theme Builder has two tabs: Image Picker and Theme Images
The first tab (Image Picker) lets you pick an image in 3 different ways:
Import from URL
You can type in any image URL, the image picker will download the image and save it in the theme as an embedded base64 string.
Import from Clipboard
Click the paste button next to the field to copy an image that is in the clipboard as a an embedded base64 string.
Link to URL
The last option lets you type in an image URL, or a theme image. The image picker will show the preview of the image immediately. However, the image is added to them as a URL.
The second tab (Theme Images) lets you select an image from the list of icons embedded in the theme.