Where are you reading these instructions? If it is from shadowbox-js.com that is not the correct place. That is the up stream site and has nothing to do with the plugin other than the plugin uses the shadowbox javascript code.
You shouldn't need to add rel="shadowbox" to anything as the plugin should handle it automatically.
In addition shadowbox does not work on image tags. In works on anchor or link tags. To make it work what you put in your post should look something like:
<a href="http://example.org/url/to/image.jpg"><img src="http://example.org/url/to/thumbnail.jpg" alt="" /></a>
If you want you can add the rel="shadowbox" to make it look like:
<a href="http://example.org/url/to/image.jpg" rel="shadowbox"><img src="http://example.org/url/to/thumbnail.jpg" alt="" /></a>
As far as the proper place to look for usage instructions see:
http://wordpress.org/extend/plugins/shadowbox-js/other_notes/