Emails are sent to users if they enable "Should anything added to your Follow Lists be emailed to you" in their profile Preferences.
Attached images (and other files) are not displayed, but are listed at the bottom of the email, within the "Post Attachments" section. They are not displayed inline for emails, since this could be a security issue if an attachment is shared to someone who does not have forum access, or who has had their access revoked.
Though, if an image is inlined within the post, it will be displayed within the email, just as an linked item from an external website is displayed.
If you wanted to edit the template directly, so the post content is truncated at a certain length, the files are:
templates/default/email_html.tpl
templates/default/email_text.tpl
Find this string:
{$posts[ind].body}
Replace it with this:
{$posts[ind].body|truncate:400}
This will truncate the post to 400 characters. This will also truncate post content for an emailed post or group of posts, and possibly other features.
This is not an advised feature thats part of the UBB.threads software. This is a custom modification. So if it breaks a stock feature on your forum, you'd be responsible for causing it.
