The term "picture" is not to be confused with "photos" In Islam it is considered prohibited to draw/make pictures/images of beings with souls, except for educational purposes or matters of security, identification,etc. This is what is meant by pictures. It is pictures/objects(which includes statues) drawn or created by people of people,animals,birds etc. Also excluded from this prohibition are children toys like dolls, teddy bears etc. It is allowed for kids to have such toys and in fact even our Prophet's wife used to have dolls.
Now as for hanging photos of people on the walls then this is not in accordance with Islam and there are numerous reasons for this and not something easily explained. Suffice to say we just don't do it.
But that's not to say we don't have photos of our family members,friends,etc..we just don't hang them up on the walls.
And lastly the topic of "picture making" is not a clear case. Even major scholars of Islam have disputed in this regard. So my views, based on my studies and the scholars I take knowledge from may differ from another Muslim and that doesn't mean either of us are sinners. Its just not a black and white case and requires much studying and analysis hence not a topic easy to be discussed!