The contest was for the months of December and January. And I downloaded the picture I wanted to my computer, and then chose that picture when I uploaded my story. After you choose a file you want to upload for the story (I used Microsoft Word 2005), you can also choose a picture to upload with the story from your harddrive.
And yes, the contest was to choose a picture and to write a story based on it. It could be anything, slice of life, fluff, angst, porn or torture... Me being who I am, I chose the last one.
If you want to check it out, it's "Payback".
And the contest is over now, but you can always wait for the next one.