It's really impractical to fax photographic images. Fax is 1-bit 2-color, same as Line art mode, meaning all pixels are either black or white, and there is no Gray possible. Fax is designed for text, perhaps line drawings or logos, but NOT photographic images. You'd rather send photographic images as email or any other method, but let's pretend we had good sense, and that we want to fax an image.
Conversion of color images to 1-bit color is a very difficult problem, that is, if you want a good image. There really is no good answer. Did I mention that continuous tone photographic images are better transmitted any other way than fax? However, if it's just gotta be done, here's a way to start.
Scan photos in Grayscale mode. We have better ways (with more control) to convert them to Line art than originally scanning them that way. If they are already scanned in color, then first convert to Grayscale.
If possible, it's best to scan at 200 dpi because 200 dpi is also native to fax. However, if that is not practical, do choose the correct resolution to obtain the size image you desire, or perhaps use Output Scaling to see the result size in inches. Set the ScanWizard White and Black Points in the usual way to obtain a good Gray image.
To convert the scanned results to 1 bit color, I prefer Paint Shop Pro. It offers more and better conversion choices than PhotoImpact. At PSP menu: Colors - Decrease Color Depth - 2 Colors, one of the three Error Diffusion choices will give the best image results. This image used the Floyd-Steinberg choice. Viewing this image at 4X ZoomIn will show how it is representing gray tones with only B&W dots.
BTW, to represent a fax, I did not set the 2-color image to be transparent here, because if the white were transparent, the flower would change to the color of this background. <grin>
Here's where we started. It does lose a little in 2 colors...
NOTE: this 1-bit conversion is for FAX. It is NOT for printing. Printer drivers will have their own conversion processes, and you can print the Gray Scale image directly, and obviously will get much better results. If you are discouraged with the quality of this fax image, and think it doesn't compare well with printed B&W images, well, you'd be right. But do you remember trying to print images with dot matrix printers at 180 dpi? Images were pretty difficult. And fax is 204x196 dpi if high resolution, and 204x98 if Normal resolution... That's just how it is. 300 or 600 dpi lasers are better! This image was scanned at 120 dpi to keep the video size down here. If we could go to 1200 dpi, this 1 bit image could become rather good. But we can't, not for fax, and not for the monitor.
If PhotoImpact is the only choice for a 1 bit conversion, then select menu: Format - Brightness, and move the Brightness slider left, to be 50% to 100%. This darkens the image considerably. Select Format - Data Type - B&W, then Dispersed halftone. This converts to 1 bit color, and lightens the image again. You may have to experiment to get the best overall darkness. PSP does this job very much better.
Save the image as TIF. Most fax software should be able to use TIF, because fax itself uses TIF. MS Word will insert TIF images into the text, and you can fax by printing from Word.