You need to specify in the advanced options of xscreensaver-demo the folder that contains your photos.
Note - in previous versions of Ubuntu you could have used a screensaver called glslideshow - however this doesnt appear to work in 11.10.
There are a number of other photo-screensavers available in xscreensaver:
To use one of the screensavers above with your photo's folder, ensure you use "only one screensaver" mode.
Don't forget to choose settings to fine-tune how the screensaver will operate.