I described in this post how to resize images and flow text around them, inside a Google Document. There is, additionally, a neat trick that lets you crop, add borders, and add shaped masks to your images.
This is possible because Google has recently added this sort of editing ability to Slides and Drawings. To make use of this, click Insert on the menu of your document, but choose Drawing instead of Image:
In the dialog that opens, click the Image icon:
You can then select an image to use, just as you would have done had you chosen Image from the Insert menu. However, as you are now using the Drawing image selector, once your image has loaded you can use the crop and mask tools to adjust it to your requirements:
When you click to Save, placing the image into your document, you will have the modified version of the image:
Of course, during this insertion process you can also use the other Drawing tools (text boxes, lines etc.) to further enhance your image, if you want to:
UPDATE May 5 2014: This behaviour is now available as native: