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The image should be either a bmp or jpg file. The program will make the image 1" high and maintain the image proportions. If your printer is a capable of 600 dpi or dots per inch, you could make the image 600 pixels high and that would equal 1".
Ultimately you can try out a couple of size and see which one looks best for you.
One last thing to remember is have your image saved on your computer's hard drive and not on a floppy.