When an email references external images, Gmail usually doesn't display them automatically. Instead we show placeholders and present you with the option to "Display images below" or "Always display images from" that sender.
We do this to help protect your privacy from spammers, who can use images and links to verify that your email address is real.
But often the messages you get with images are from friends or family and there's no reason to worry about your privacy — you just want to see the photo of your newborn niece or the invitation design they're sending you. So, in these cases, we've decided to start displaying images by default. Now, whenever someone you've emailed at least twice sends you a message containing images, you'll see them right away. Note that we picked this threshold of two messages to start with, but we may tweak it if it doesn't seem right going forward. And we only display images by default for authenticated messages (using SPF or DKIM). Gmail and other big mail providers usually authenticate their mail, but other services might not, so it's possible you'll get an email from one of your contacts where images aren't displayed by default.
If you prefer to go back to the way things were, you can choose not to display images from certain senders or from anyone. To disable images from an individual sender, click "Don't display from now on" under the "Show details" link of an email from them with images. To disable images from everybody, select "Ask before displaying external content" under "External content" on the general Settings tab.
Gmail has tweaked this and will now auto display images in emails received from your known contacts. Now, whenever someone you've emailed atleast twice sends you a message containing images, you'll see them right away. So, no more clicking to display images in emails received from email IDs you have emailed atleast twice before. As such, you can turn OFF / ON image display in any email message irrespective of sender's email ID by clicking display images or hide images link under received email header.