well yea it has to be a URL, the image has to be on the internet somewhere. It cant work from your harddrive because your computer isnt online 24/7. You have to get the image to the internet somehow (one of the free sig hosting sites for example) and then once you have the image on the internet, you can reference it in your signature.
Here are some sig hosting websites I found on a quick google search:
both of those seem to be really good, but if you cant get it to work, there are a million other image hosting sites. Let me know how it goes and if you need more help.