This is the respose I got from Blog City: 

"Files is down right now - but if you go to "control panel"->files (on the left)and upload there. Then to build an album go to "entries" and click "create aphotoalbum" - we hope you like it - its a feature we love."
However, when I go to "control panel" the only thing resembling "files" is  "file space", which is a premium only feature. Creating a photo album is also a premium feature.