Disk Images in Disk Utility Don't Work

I think that either I have a misunderstanding of .dmg files or Disk Utility isn't working. I see a .dmg as an exact clone of a particular file or folder that when opened mounts a volume on a user's desktop with contains the files.
However, if I use DU and I selected new disk image and I want to make a disk image of all my desktop images I'm not able to.
I click new image and it asks me what to call the .dmg file, is asks me where to save it, what size it should be, etc. But, it never asks me which file or folder I want to make the disk image of. This is weird. (maybe it is because I don't understand the concept of a disk image) All is does is make the .dmg file and mount the volume with nothing inside.
If I were to copy all the desktop pictures into the volume, eject it, and then remount it they are all there. This works, but I must be missing some hidden files. I thought the idea of a disk image was to select the folder or file from which to create the .dmg file and let DU create it so that NO hidden images were missing. Thanks for the help.

You almost have it.
To make an image of a mounted volume, run disk utility and select the volume from the list on the left. Click on the 'New Image' icon and then give it a name in the save dialog.
Hope that helps ya.
I know how to make a disk image of a mounted volume (a CD or DVD) by doing the above mentioned. What I want to do is make a disk image of a folder on my HD. This is were I get into a conflict in which it asks me where to save to .dmg file, and how big it is, but never asks me from which the .dmg is to be created from.

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