Once you've got the link you want to insert into a post copied to the clipboard:

All you have to do is choose what text to be the link, and then highlight it and click the Create Link button on the toolbar.



A box will pop up for you to paste the link into



After you click OK, the text you highlighted before will now appear as a link:


This works the same way in Windows Live Writer, but in Live Writer you can specify to pop the link up in a new window.