If I understand this correctly, then if the block size is too small (less than 1MB), it would cause an image (let's say 100MB in size) to split/fragment? Or would the blockchain simply ignore any and all data of such great sizes?
you say blockchain but you think bitcoin.
when you think about bitcoin and the way it is using blockchain technology then you are thinking about a currency and the blocks here are containing monetary transfers. and also it needs to be decentralized hence all the limitations,...
but when you say blockchain you are talking about a "database" where you store files so you shouldn't think bitcoin anymore, you should think a chain-of-blocks where the blocks contain transactions which include files. there are already a couple of altcoins doing this "data storage" kind of thing. you should check them out:
https://filecoin.io/
https://storj.io/
https://www.maidsafe.net/
https://sia.tech/