Please familiarize yourself to using WordPress’s post thumbnails feature as most themes, including this one, use this feature.
Every image representing a post/page or a portfolio item is set when you upload the image. What you need to do is, once your uploading of the image is done, click on the “Set Featured Image” link on the left of the media manager to set it as the thumbnail for that post.
You can regenerate thumbnails using Regenerate thumbnails plugin: http://wordpress.org/extend/plugins/regenerate-thumbnails/
Some pages might require CSS changes if you change the image sizes or they might not look as crisp as the original image.
For better looking images:
If you have noticed, this theme has crispier looking images than other themes out there. That’s because, we are using a simple plugin called SimpleJPEGQuality available at http://brokenlibrarian.org/tinyplugins/simplejpegquality/. What it does is, it improves the WordPress ‘s default compression of the uploaded images.