IMPORTANT! It is possible that after theme activation are images wrongly cropped and look ugly!
In this case use this plugin: http://wordpress.org/extend/plugins/regenerate-thumbnails/ to regenerate old thumbnails from previous theme. After plugin installation start regeneration in Tools > Regen. Thumbnails This process can take a while and you cannot close tab/window until regeneration is done.
Images and thumbnails are generated automatically.
To display thumbnails correctly upload images via WP interface using "Set featured image" button. After image upload set featured image.