To create a gallery in a post, you must first upload the images. Even if you already have the images in your media library, you must upload them again while you are editing the post you want to have the gallery in. Weird, I know.
It is only after the images are uploaded and saved that the gallery settings appear. For this gallery I chose to have each thumbnail linked to the original image file, so when you click on the thumbnail you are taken to the full size version of the image.
You now have the option to edit images in WordPress after you’ve uploaded them, but it is best to resize the images with an image editing program (such as Photoshop Elements, Paintshop Pro or similar) while it is on your hard drive, and then upload the image. It will have a smaller file size and thus save on your bandwidth.
Furthermore, if you want to show a large image that is not included in the gallery, such as the image below, you must create a fake post, upload your large image into that, and save it as a draft. Then you can go back to your original post, choose the image from the media library, and insert it into the post. (If it is in your Media Library because you already used it for a previous post, you don’t have to create a fake or dummy post.)
Because the image is “attached” to a different post, it will not show up in the gallery for this post. Strange, but true. This somewhat outdated Codex entry explains why.