There are 2 ways to manage your banner images. You can use the AdRotate Media Manager and store all images in a special folder for banners or use the WordPress Media Manager.
The preferred method is using the AdRotate Media Manager. This keeps your banners completely separate from other media.
Using the AdRotate Media Manager
AdRotate and AdRotate Pro have their own Media Manager where you can upload banner images and some files to your 'banners' folder. This folder is by default located in /wp-content/banners/ and can be populated with your (s)FTP client or via the AdRotate Media Manager. Uploading is as easy as selecting the file and clicking Upload File.
All usable files will be listed in the dropdown menu for selecting images when editing an advert. They are also listed in the Media manager (including images from advertisers).
This allows you to easily oversee which images you have and you can delete the ones you no longer need without having to log in with your (s)FTP client.
Using the WordPress Media Manager
While a fast and effective way, because the banners are mixed in with all other media files it may be a bit messy to oversee what's what. For your convenience the WordPress Media Uploader uses a tailored uploading screen so it doesn't show any options or items you don't need. Simply select the image and click Select Banner to populate the banner image field in AdRotate.
Moving your banner folder
You may decide to move the banners folder elsewhere. Simply use your (s)FTP client to make a new folder somewhere in the wp-content folder (or it's equivalent) and change the path in AdRotate Settings. Changing the path does not move existing files to the new location. You have to do that yourself with (s)FTP. Moving files around may break existing adverts.
Creating a banners or reports folder
If for some reason the banners or reports folder went missing or doesn't exist you need to create one.
When doing so make sure you create it in the place where AdRotate looks for it. By default this is in the wp-content folder.
AdRotate also needs to be able to write files to that folder. As a rule of thumb imitating the file permissions and ownership of the wp-content folder for your banners folder works fine.
Check with your hosting provider if you're not sure what setting works best for you.