The notes app in iOS 8 is pretty simplistic. It's certainly stripped down when compared to the number of features offered in apps like Evernote, but that's by design. Notes is a no-frills note-taking app that simply allows you to take quick notes and sync with iCloud. Prior to iOS 8, you couldn't even using rich text formatting (italics, bold and underline), but that just changed.
Not only does Notes in iOS 8 allow you to use rich text formatting, but it now also allows you to insert images now as well! This is a feature that has been available in the Notes app for Mac for a while now. It's nice to see it finally make its way to iOS.
Adding rich text formatting is easy. Simply highlight the text you want to format, and choose the "BIU" option from the contextual menu. From there, choose the formatting options you want to use.
To insert an image, tap where you want to insert the image. Choose the "Insert Image" option, then browse for the image you want to use.