Yes, you can insert images along with videos. The images can be placed on any video track.The following Image formats are supported by Video Edit Magic
1.Bitmap (.bmp)
2.GIF (Graphics Interchange Format)
3.JPEG (Joint Photographic Experts Group)
4.TGA (Targa or Truevision Graphics Adapter)
5.Mode 2 (Uncompressed RGB) in 16-bit, 24-bit, or 32-bit.

Image files are treated like videos and you can resize, cut, copy, paste and crop them.
If you intend to overlay one image over the other then place the images on the two video tracks and add the Transparency or Picture-in-Picture transition depending on your requirement.

By default, Video Edit Magic takes the dimension of the first file you add to the timeline. You can change this to a specific dimension when creating a New Project. To do so:

1. On the File menu, click New Project.
2. Select the Let me specify the Project Dimensions option.
3. Select one of the standard Project Dimensions or select Custom and specify a Custom Dimension.
4. Click OK.

Now any files you add will use the specified dimension. If the dimension of the file does not match the project's dimension then you can use Video Edit Magic's Stretch Mode clip property to specify how the file should fit in the project.

Please refer to Video Edit Magic's user guide for details. You can also read the user guide online from the following link:
http://www.deskshare.com/vem-help/index.aspx

Yes, you can add an image to the Video 2 track of the timeline and then use the Key Color (Transparency) video transition to superimpose it over a video or image in the Video 1 track of the timeline.

In your example, you can add an image with the first chair to the Video 2 track and the video/image of the person to the Video 1 track. From the Video Transition tab under the Collections window, add the Key Color Transition to the Transition track between the Video 1 and Video 2 tracks. From the Key Color Transition properties, select a color that you want to render as transparent. You can then add the image of a different chair to the Video 2 track to make it switch. Make sure that the transition covers both the images.

For more information, read our article discussing the Green Screen technique from the following link:
http://www.deskshare.com/Resources/articles/vem_greenscreentechnique.aspx