Setting image for flat view format

Not understanding how to set a background image for the flat view folder format.
Options seem to be grayed out, and there's no Browse option.

What am I missing?

Alternately, sometime in the future, a custom watermark would be handy (e.g. "FLAT" stretched diagonally across the tab.)

See HOW TO: Understand and Configure Background Images

Awesome! Thanks a million.