Yes, before I ask this question I searched for a solution here and could not find a real answer. Thank you. Please see the picture below:
The default wallpapers are part of
ubuntu-wallpapers-<codename> package (e.g. ubuntu-wallpapers-precise, ubuntu-wallpapers-trusty, etc.). Run
dpkg -L ubuntu-wallpapers-$(lsb_release -cs) to get the list of wallpaper files.
In the "Appearance" window go to the drop menu above the thumbnails and pick pictures. You will then be able to pick a wallpaper that is not in the "backgrounds" but in the "pictures" folder which is in your home folder. Using the same start, you can also navigate out of the home folder and fish out a wallpaper stored in
/usr/share/backgrounds. While the added wallpapers will not show in the "Appearance" window, they are there if you have copied them there (as the owner from terminal)