First of, I recommend you to develop in FileMaker 15 instead of FileMaker 7. It will be hard to keep your software up to date with latest OS (Windows or MacOS).
In FileMaker 7 you can have multiple tables in the same file (database). Create the tables that you need in your file and then use the relationship graph to create relationships between your databases.
Maybe you should have a look at the free beginner course on how to setup a FileMaker database FileMaker Training Series | FileMaker
I would love to be using FileMaker 15, but my company won't spring for the cost of the upgrade.
I've already tried to use the relationship graph, but the field that I created called "Thumbnail" is greyed out and I can't click on it. I think the fact that it is a container rather than a text field is the reason for that.
Container fields can not be a part of a relationship. You can create a calculated field (text) of your container field and use that in your relationship.
Try to persuade them to upgrade, otherwise you will end up in problem very soon with your OS
I don't understand how to do that. I need a picture to show up in that field.
Presumably there is a relationship by contact ID from contacts to photos.
Create another relationship, also by contact ID, but add a Sort to it. Make the sort by "First Photo" descending.
Then you simply put the related photo on your contact layout.