State (and models) are stored in $scope
$scope is Angular's data storage object. It's analogous to a database. $scope itself is not the model, but you can store models in $scope.
Each $scope has a parent $scope, all the way up to $rootScope forming a tree structure that loosely mirrors your DOM. When you call a directive which requires a new $scope, such as ng-controller, a new $scope object will be created and added to the tree.
$scope objects are connected using prototypical inheritance. This means that if you add a model at a higher level in the tree, it will be available to all the lower levels. This is a phenomenally powerful feature which makes the $scope hierarchy almost transparent to the template author.
Controllers initialise $scope
The purpose of the controller is to initialise $scope. The same controller can initialize many $scope objects in different parts of the page. The controller is instantiated, sets up the $scope object and then exits. You can use the same controller to initialize many $scopes in different parts of the page.
In the case of your image gallery, you would have an imageGallery controller which you would then apply to every portion of the DOM which you want to be a gallery using the ng-controller directive. That portion of the page would get it's own $scope, which you would use to store the selectedPhoto attribute.
Prototypical scopes
$scope inherits from its parent using plain old prototypical inheritance all the way up to $rootScope, so you can store your objects anywhere on the hierarchy that makes sense. You get a tree of $scope objects that roughly relates to your current DOM. If your DOM changes, new $scope objects are created for you as required.
$scope is just a plain JavaScript object. It's no more wasteful to create multiple $scope objects than it would be to create an array with multiple currentImage objects. It's a sensible way to organise your code.
In this way Angular does away with the old "where do I store my data" problem that we often find in JavaScript. It's the source of one of the really big productivity gains that we get from Angular.
Got global data (eg. a userId)? store it on $rootScope. Got local data (eg. a currentImage in a gallery where there are multiple gallery instances)? Store it on the $scope object that belongs to that gallery.
$scope is automatically available to you in the correct portion of the template.
Angular models are thin
Coming from a Rails background where we emphasise fat models and skinny controllers, I found Angular's 'barely there' models surprising. In fact, putting a lot of business logic in your model often leads to problems down the line, as we sometimes see with the User model in Rails which, if you're not careful, will grow until it becomes unmaintainable.
An angular model is simply a JavaScript object or primitive.
Any object can be a model. Models are typically defined using JSON in the controller, or AJAXed in from a server. A model might be a JSON object, or might be just a string, array, or even a number.
Of course, there's nothing to stop you adding additional functions to your model and storing them in the JSON object if you want to, but this would be porting in a paradigm that doesn't really fit with Angular.
Angular objects are typically repositories of data, not functions.
The model on the front end is not the real model
Of course the model that you hold on the client is not the real model. Your actual model, your single source of truth lives on the server. We synchronise it using an API, but if there's a conflict between the two the model in your database is obviously the ultimate victor.
This gives you privacy for things like discount codes, etc. The model you find in your front end is a synchronised version of the public properties of the real model, which is remote.
Business logic can live in services.
Say you want to write a method to do something to your model, synchronise it, or validate it for example. In other frameworks you might be tempted to extend your model with a method to do this. In Angular you would be more likely to write a service.
Services are singleton objects. Like any other JavaScript object you can put functions or data in them. Angular comes with a bunch of built in services, such as $http. You can build your own, and use dependency injection to automatically provide them to your controllers.
A service might contain methods to talk to a RESTful API for example, or to validate your data, or any other work you might need to do.
Services are not models
Of course you shouldn't use services as models. Use them as objects which can do stuff. Sometimes they do stuff to your model. It's a different way of thinking, but a workable one.