Below is the typical path you will use to save a photo for a custom character on windows.
*Note: your picture should be saved as .jpg ONLY
1) Select your photo and edit it prior to saving to the Portraits folder
2) After editing, save the photo to the Portraits folder. This can typically be found by using the following path: OS, Program Files (x89), Steam, SteamApps, common, This War of Mine, Portraits
3) After saving, restart This War of Mine to allow the photo to become available for use