The image data type holds variable-length binary data up to approx 2GB in size. The actual binary data is stored in a separate group of data pages to that which the table rows are stored in. A 16 byte pointer is then stored in the actual row that tells SQL Server where to find the data.
As the data is variable-length, it will only use as much space as it needs, ie a 2k image will only take 2k of storage space.
--James