So the command says you can use this with the image command to popup a window with an image. How does that work?

I tried:
{popup:Celyse Letter:img:celyse_letter.jpg}

But the popup box just shows the text img:celyse_letter.jpg.

Text processor commands inside the popup work just like they would anywhere else.

If you put img:celyse_letter.jpg as an object's description, then looking at the object will display the text "img:celyse_letter.jpg".

If you put img:celyse_letter.jpg as the text that appears in a popup, then the popup will contain the text "img:celyse_letter.jpg".

What would you put in an object's description, or a room description, if you wanted to show an image? I suspect it would be {img:celyse_letter.jpg}.

So you put the same thing inside the popup:

{popup:Celyse Letter:{img:celyse_letter.jpg}}