A picture is worth 1000 words, or so they say. But a picture without a caption isn’t worth very much. Identifying all of the people in a picture is of great value to your reader. Include when the picture was taken or the age of the person, even if it is only approximate. If the place is important then include that also. The information in the caption creates more value and interest in your book. Captions can be done in a different font style from the text so they stand out when they appear close to the text. A font that I see used frequently and looks very nice is bold italics in the Times Roman font.
Here are some links to web pages that explain how to use captions correctly in Word 2007: http://office.microsoft.com/en-us/word/HP012289821033.aspx
Remember the captions!