You firstly get a link which has to be that of an image and the link has to be direct in order for it to work. For Firefox and Chrome browsers you go to a picture on the web you want, right click with your mouse and select the option if seen as 'Copy image URL'. On Imageshack you just copy the direct link with your mouse.
Once you have done that, here is what you do.
Go to 'Profile' on the top of your page below the main forum banner and go to 'Signature'.
Once you go there, you then go to the Image tab (ringed in brown).
Then you click on the Image tab and you paste the link inside the brown ring in the middle where the orange rectangle is. It should look like the one behind which is my actual signature, if not then make sure any gaps are not there.
If you are sure the signature is done correctly and it wouldn't come out, here is how to activate the signature option.
Go to 'Profile' on the top of the page again, then into 'Preferences' as ringed in brown.
And you see where the links are underlined in brown? Select 'Yes' and save.