If you want to set the selected image as desktop wallpaper select the menu Set Image as Wallpaper from the Tools menu. The menu contains four ways of setting the wallpaper :
Centered : the image will be centered on the desktop.
Tiled : the image will be duplicated on the desktop as tiles on the floor.
Stretched : the image will be scaled to fill the desktop.
Scaled : the image will be scaled to fill the desktop mantaining the aspect ratio.
If you want to restore the old wallpaper use the Tools->Set Image as Wallpaper->Restore item.