That's cool. I didn't know you could do that. It works fine for me in Google Chrome, but I can't get it to work in Internet Exploder (Version 8) though. For example, if the picture is on one tab and Google Images is another tab, I can drag the image and switch to the Google Images tab and drop the image into the search bar. Internet Exploder won't allow me to switch tabs when I try to do the drag and drop. I use Google Chrome the vast majority of the time anyway, so it shouldn't be an issue for me.

The way I had been doing it was to get the direct link to the picture by opening it in a new window, then copying the link, then clicking on the "Search by image" camera icon on the search bar and pasting the link.

Needless to say, your way is easier.