If you find this new option useful consider donating to myself (juggledad), Flynn the theme developer and lmilesw. New feature and support of this theme takes time. This new option took about 6 hours to design, code test and document. Donations are the only thing that will keep this theme and it's support continuing.
In 3.7.12 a change to the way you save images across updates has been implimented. This was first introduced in 3.7.11 but some sites reported errors due to host security implimentations.
In the new implimentation you will choose (1) to use the existing images folder in the 'atahualpa' folder, or a folder in the 'wp-content' folder and (2) if using the 'wp-content' folder, the name of the folder to use. You will also create a subfolder called 'header' that will contain your header images keeping them separate from your logo and favicon.
For example,
1) in the 'wp-content' folder, create a folder called 'ata-images' - give it a permission of 755
2) move your logo and/or favicon into it - give them permissions of 644
3) create a folder inside the 'ata-images' folder called 'header' give it a permission of 755
4) move your header images into this folder - give them permissions of 644
5) at ato->Image Locations(a new option)->Relative location of images? select 'wp-content'
5) at ato->Image Locations(a new option)->Images Directory? select 'ata-images'
you are all done.