The option you're looking for can be found in the CP:
(This can be found in the UBB.Wiki) - CP -> Display Options -> General -> Primary Tab -> Topic Display Options -> "Max Size for Inline Uploaded Images"
This setting, in bytes, is how large of an image you want to display "in line" when attached to a post; I would recommend keeping this number low as every user loading the post is going to load the image, including search engines (and as such, can eat through bandwidth on popular forums).
