LaTeX by default reserves the right amount of space for any image (unless you tell it otherwise) so what you describe should normally not happen. However, to be able to do this, the graphic format need to be able to hold information about the graphic dimensions in a why that LaTeX can reserve this space (some graphical formats don't do this, though for png it should work).
That leaves on other area of issues: the program that generated the graphic may have written inforrect information into the graphic. Then of course you see the behavior that the graphic overprints or falls out of the page.
To test this, try
\frame{\includegraphics[width=10mm]{C:/Users/PhizKid/Desktop/image1.png}}
The the frame should show you what LaTeX thinks the size of the graphic is and if that doesn't fit reality, you either have to regenerate your graphic or you need to use the optional keys to \includegrahics that explicitly set the bounding box information manually, i.e., you have to tell LaTeX what the size is in reality.
In case the size is wrong use can you can't regenerate the graphic image, then use the bb= key as follows:
\includegraphics[bb=0mm 0mm 5cm 8cm]{C:/Users/PhizKid/Desktop/image1.png}
if your image is 5x8 cm. The first two values describe the lower left corner ofthe bounding box (which is normally the point 0/0) and the other two the upper right corner. If the zize information is really strange you may also have to adjust the first two values. Read the documentation on the graphicx package or any good book on LaTeX (like ours :-)