The \parshape primitive of TeX allows you to specify the paragraph shape on a line-by-line basis using an <indent> <width> pair. Why include this approach when Mico already did such a nice and clean approach via cutwin? Well, using \parshape allows you to typeset arbitrary (non-rectilinear) shapes as well, making it useful to understand how it works.
The following example is a crude reproduction of cutwin using \parshape and requires some manual intervention. It won't work well close to page breaks, but the same holds for wrapfig and friends.

\documentclass{article}
\usepackage[demo]{graphicx}% http://ctan.org/pkg/graphicx
% The 'demo' option creates a 150pt x 100pt black rectangle by default
\begin{document}
Lorem ipsum dolor sit amet, consectetur adipiscing elit. Nullam et nunc id sem dictum ullamcorper
ut vitae augue. Etiam vehicula, dolor sit amet eleifend imperdiet, tortor neque mollis dui, ut
laoreet neque lectus a metus. Vivamus fermentum, tellus eget cursus mollis, mi orci facilisis lacus,
vitae aliquet arcu est nec tortor. Integer ut nunc vulputate velit dapibus sodales eget eu nulla.
Duis mattis tristique justo semper condimentum. Phasellus eu libero odio. Integer interdum turpis in
metus rhoncus ac tempus tortor fermentum.
% Image inclusion
\newlength{\figwidth}%
\setlength{\figwidth}{\dimexpr\linewidth-150pt-2ex\relax}
\null\hfill\smash{\raisebox{-\dimexpr 9.5\baselineskip+\parskip\relax}%
{\includegraphics{image}}}\strut \\[-\dimexpr 3\baselineskip+2\parskip\relax]
% Paragraph formatting
\parshape=13 % 13 lines will be adjusted
0pt \linewidth 0pt \linewidth % 2 lines are regular
0pt \figwidth 0pt \figwidth 0pt \figwidth 0pt \figwidth 0pt \figwidth
0pt \figwidth 0pt \figwidth 0pt \figwidth 0pt \figwidth 0pt \figwidth % 10 lines are indented on right
0pt \linewidth % last line resets the paragraph alignment to regular
Lorem ipsum dolor sit amet, consectetur adipiscing elit. Nullam et nunc id sem dictum ullamcorper
ut vitae augue. Etiam vehicula, dolor sit amet eleifend imperdiet, tortor neque mollis dui, ut
laoreet neque lectus a metus. Vivamus fermentum, tellus eget cursus mollis, mi orci facilisis lacus,
vitae aliquet arcu est nec tortor. Integer ut nunc vulputate velit dapibus sodales eget eu nulla.
Duis mattis tristique justo semper condimentum. Phasellus eu libero odio. Integer interdum turpis in
metus rhoncus ac tempus tortor fermentum.
Lorem ipsum dolor sit amet, consectetur adipiscing elit. Nullam et nunc id sem dictum ullamcorper
ut vitae augue. Etiam vehicula, dolor sit amet eleifend imperdiet, tortor neque mollis dui, ut
laoreet neque lectus a metus. Vivamus fermentum, tellus eget cursus mollis, mi orci facilisis lacus,
vitae aliquet arcu est nec tortor. Integer ut nunc vulputate velit dapibus sodales eget eu nulla.
Duis mattis tristique justo semper condimentum. Phasellus eu libero odio. Integer interdum turpis in
metus rhoncus ac tempus tortor fermentum.
Lorem ipsum dolor sit amet, consectetur adipiscing elit. Nullam et nunc id sem dictum ullamcorper
ut vitae augue. Etiam vehicula, dolor sit amet eleifend imperdiet, tortor neque mollis dui, ut
laoreet neque lectus a metus. Vivamus fermentum, tellus eget cursus mollis, mi orci facilisis lacus,
vitae aliquet arcu est nec tortor. Integer ut nunc vulputate velit dapibus sodales eget eu nulla.
Duis mattis tristique justo semper condimentum. Phasellus eu libero odio. Integer interdum turpis in
metus rhoncus ac tempus tortor fermentum.
\end{document}
\parshape=<n> <i1> <l1> <i2> <l2> ... sets the line indents and line widths for the following <n> lines in a paragraph. If the paragraph continues past <n> lines, it uses the last set <i> <l> pair.
So, in the above MWE, the image is first set, followed by the paragraph:
- Image:
image is typeset flush right and \smashed, and dropped (via \raisebox) into position. A manual calculation of the number of lines depends on the image height. In my example, the image is dropped 9.5\baselineskip+\parskip. The vertical back-skip/correction after setting the image is needed so that prior paragraphs line up.
- Paragraph: The first two lines (out of
13) is indented 0pt and has a width of \linewidth. The next 10 lines have a width of \figwidth, set to \linewidth-150pt-2ex which leaves a 2ex gap between the paragraph text and image. The last (13th) line resets the paragraph style back to no indent (0pt) and natural width (\linewidth), just like the first two lines.
As mentioned, now it would be possible to modify this approach to accommodate images or shapes that are irregular.
\rulebut then discovered that with\usepackage[demo]{graphicx}, you can simply use\includegraphics[width=2in,height=1in]{imageFileName}. Just an FYI. – Peter Grill Jan 11 '12 at 23:07\placefigure[right,hanging,3*lines,none]{}{...}– Aditya Jan 12 '12 at 21:53