It seems if I added one more to my depth to retrieve,
Httrack will get the image from the IMG tag also. Here's
what I did: 

Made a test project with the one page above, set depth to 1
and retrieved the site. Images displayed as broken images in
the page itself, but when I clicked on the image, it
appeared just fine. This means it got the image for the A
HREF tag but not the IMG tag inside the A HREF tag.

So I set my depth to 2, and Httrack then got the image for
the IMG tag also, so in my web page it displayed a small
version of the image. 

So that's how it works people. After thinking about it a
little more, I had suspected as much. I tested my theory and
I was right.