Szoter is a free online tool for annotating images that are stored on your computer. You can also use Szoter to capture and annotate screenshots.
You can use Szoter on the web or download the Adobe Air version of it to run on your desktop. Either way you can upload images, draw on those images, and type on those images. When you're done annotating and drawing on your images you can save them to your local computer or share them online through your favorite social networks. Szoter can also be used to capture your screen and create annotated screen captures. The video below provides a demonstration of Szoter.
szoter.com screencast from szoter on Vimeo.
Applications for Education
Szoter could be a great service to use when you need to create directions on how to use a new website or software. You could also have students use Szoter to create annotated images that they then arrange in sequence to tell a story.