Updating to 2012, when we see that image sizes, and number of images, are growing and growing, in all applications...
We need some distinction between "original image" and "processed image", like thumbnail.
As Jcoby's answer says, there are two options, then, I recommend:
use blob (Binary Large OBject): for original image store, at your table. See Ivan's answer (no problem with backing up blobs!), PostgreSQL additional supplied modules, How-tos etc.
use a separate database with DBlink: for original image store, at another (unified/specialized) database. In this case, I prefer bytea, but blob is near the same. Separating database is the best way for a "unified image webservice".
use bytea (BYTE Array): for caching thumbnail images. Cache the little images to send it fast to the web-browser (to avoiding rendering problems) and reduce server processing. Cache also essential metadata, like width and height. Database caching is the easiest way, but check your needs and server configs (ex. Apache modules): store thumbnails at file system may be better, compare performances. Remember that it is a (unified) web-service, then can be stored at a separate database (with no backups), serving many tables. See also PostgreSQL binary data types manual, tests with bytea column, etc.
NOTE1: today the use of "dual solutions" (database+filesystem) is deprecated (!). There are many advantages to using "only database" instead dual. PostgreSQL have comparable performance and good tools for export/import/input/output.
NOTE2: remember that PostgreSQL have only bytea, not have a default Oracle's BLOB: "The SQL standard defines (...) BLOB. The input format is different from bytea, but the provided functions and operators are mostly the same",Manual.
EDIT 2014: I have not changed the original text above today (my answer was Apr 22 '12, now with 14 votes), I?am opening the answer for your changes (see "Wiki mode", you can edit!), for proofreading and for updates.
The question is stable (@Ivans's '08 answer with 19 votes), please, help to improve this text.
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