In my experience, most publishers prefer to match the artist and the writer themselves, so they prefer the manuscript to not have pictures included. The only real exception is for people who do both well, and even then they are likely to have first established themselves as one or the other.
If you do decided to submit both, the manuscript should be presented as just text, like any other manuscript, and the pictures in a separate portfolio. (You can include some notations to indicate what goes together.) Occasionally people will also submit a mockup of the final product, but that isn't a requirement.
If you are more of an artist than a writer, you can just submit a portfolio of art and see if you can get picked up for a new illustration project.