Host your image on a free image hoster such as steemimg.com or imgur.com, copy and paste the image URL into the field and hit the update button.

You're like me and are cautious about using your active authority key on the web, here's how you set an avatar using the cli_wallet. The avatar is stored in an account's JSON metadata, and can be set using the update_account_meta command.The quotation marks surrounding the JSON should not be escaped. Be sure that you include any existing JSON metadata that your account is presently using so it's not removed.