Whenever you upload a new image to your WordPress website the original image is saved and (at least) three additional versions of the image are generated and also saved. When you look in the Media Library you will only see the original version that you uploaded. The other versions are available for your theme to use in various places on your website. The thumbnail size is often used on Archive pages.
When you use an image from your media library in one of your posts you will see the option to use various sizes of the graphic file within your post/page content. The sizes from which you can select are these sizes shown on the Media Settings page. When using the WordPress Block Editor you now have much more control of image displays.
You have the option to change these set image sizes to whatever sizes you choose, however make sure the new sizes are compatible with your theme (check the theme documentation). Also understand that the size change will only be in effect for media files uploaded after you change the settings on this page.
If you want to change the sizes of all the graphic files in your media library you can use a plugin called Regenerate Thumbnails to resize your entire media library.
By default, all media files that you upload are placed in a folder within your wp-content directory called uploads, usually organized by year and month. You have the option of changing the name and location of your uploads directory to something else if you prefer.
As of WordPress version 5.0 and the change to the block editor for generating posts and pages, selecting an image block will permit you to select an image to be inserted into the block. At that point you will be able to select the position of the image (float left, right, center or set to wide or full width) as well as use drag buttons on the side and bottom of the image in the editor to resize the image to fit your content. You can also link the image to the full-sized image that you uploaded.
When you upload the image and select it you will also have the ability to compress the image for use on the Internet. The smaller the file size, the quicker the image (and page/post that it is on) will load. Page load time is one of the ranking factors used by search engines and is a leading reason that site visitors abandon a page/post – it takes too long to load, especially on mobile devices.