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Originally Posted by ljstreet
From what I understand, images are not embedded in the file when you save a Word document as html, so when you convert the html to epub, you have to have all the images in one place (?) - not sure how that works.
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If your .doc or .docx file has images, they are embedded into the file, unless you've taken special steps to prevent that. If you then save as filtered html (from Word), the images will all be saved into a folder with the html file itself. The resulting html will have relative links to the files in the adjacent folder. It should be accepted into calibre and convert just fine. I've never had any trouble with this process.
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In any case, my image files are all over my computer in multiple different folders, none of which are the same as the one containing the html file.
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Your source images can be all over the place, but they'll also be in the filename_files folder with the filename.html file produced when you saved the filename.doc file in filtered html format.
It is possible to insert hyperlinks to pictures, instead of the picture files, or to use other methods that would cause trouble with this process, but if you used the normal Insert | Picture | From File process it should work without trouble.