Image search has its challenges, but yet, it is a powerful beast on its own. For as long as there has been image search, the issues of the search engine showing the original image, as opposed to those who hotlink to those images, has been a huge issue. Why? Well, Googler, JohnMu, put a lot of time into a response on why this is the case. So I figured I share the reason, directly from the horses mouth (as they say).
JohnMu said in a Google Webmaster Help thread:
As Becky mentioned, hotlinking and ranking in Image Search is a complicated problem :). One of the reasons for this is - apart from the fact that many sites host their images elsewhere - that sometimes a different page is more relevant than your page for the keywords the person was searching for. For example, if someone searches for "beach photo" and your awesome vacation sunset picture happens to match, but your own page does not mention "beach photo" (or otherwise does not appear to be relevant for "beach photo") it's possible that we'll link to some other site that does mention "beach photo" together with your image.This can be particularly problematic for gallery scripts, eg when your own site uses "DSC_02102.JPG" as the title and as the only unique text on the landing page. It might be a great picture of a laughing penguin jumping over a striped cow on the first of August, but we wouldn't be able to tell from your page alone. If however, that same image were linked in a forum where people were talking about these kinds of things, that image - together with the forum page - suddenly becomes relevant for some keywords.
So.. if you see that your own images are not ranking with content from your site, I'd recommend taking that as a challenge and working to make sure that your own pages are as relevant as they can be, with your images.
It is hard for me to add more to this explanation. It is an issue, that is for sure and publishers often don't help. I mean, I often host my images in Flickr and then embed them here. I likely should begin hosting them here, because it would give this site more traffic, plus it would show up more often in Google News. But Flickr bears the bandwidth costs and it is just so easy, plus Flickr does send nice traffic.
Here is additional details on Google Image search that might help.
Forum discussion at Google Webmaster Help.
