Myself, I prefer inserting graphics (images and pictures, according to LO/OO) in figures (illustrations, according to LO/OO) without inserting the figures inside a needless paragraph. I am sure that most writers/editors of the user guides are aware of the hierarchy of the factory-default paragraph styles; however, I will expound on this topic just a bit...
All the default paragraph styles (except the root style) inherit from the root style named Default Style (previously named Default until fairly recently). There is a (second-level) Caption style, which itself has four default (third-level) styles that inherit from it--Drawing, Illustration, Table, and Text; all of those four are meant, by default, to be used for adding captions to drawings, etc. The Caption style could also be used by itself if only one type of captioning is used (figures with no tables or vice versa), but the Caption style can be further used to set up its children default styles with a common formatting characteristic, such as a redefined default typeface (font) for all of the four third-level captioning styles, which can be formatted differently from those in Default Style--the granddaddy, first-level style.
So, there is no need to create any special custom caption paragraph styles or create other paragraph styles to insert figures into paragraphs with those custom paragraph styles--unless one wants to. Staying with the factory defaults, a figure could employ the default Illustration paragraph style for just the figures' captions--but not for the entire figure (illustration) construction. Likewise, the default Table (caption) paragraph style can be used for captioning tables, but not for the table's elements.
My writing/editing preference is not employing any custom styles unless there is a real need for creating any. For making a figure with the factory defaults, first insert an image graphic and change whatever formatting desired (via the Picture dialog box) and, if a caption is used (often, a recommended procedure), then select the graphic and use the Caption command (right-click menu) to invoke the Insert Caption dialog box, which by default sets the caption to use the Illustration (caption) paragraph style, sets up its figure (illustration) numbering, etc.
Inserting an image by itself--without a caption--sets up the image automatically with the default Graphics frame style; adding a caption afterward then changes the captioned figure automatically with the Frame frame style, which encloses the image (Graphics frame style) and a caption (Illustration paragraph style).
Anyway, that's my dos centavos...
Gary