I'm with google, so I will tell you how I did this and hopefull someone else can come in and correct me if it is different for your host
First I edited my image with photo edit software to make it the right shape for my banner.
Then I went into the blog, selected add a photo and dragged the location of the photo to the top of the layout.
I used a selection of images rather than a photo, (you can see on my blog at
http://elizabethscraftroom.blogspot.com/) and it seemed to work fine. Good luck.