Hello sns,
Welcome to MS Q&A forum.
Let me help to clarify your questions:
"I saw Buildagent2 image from TESTCOMPUTERGALLERY, how to choose this particular image while creating VM?" - just navigate to the Image Blade and click "Create VM" or if you are using the blade "Create a VM" click "See all images" and choose the image what you need to use under the "Other Items" on the left side.
"Related to 3rd step how do we create new image from updated VM" - kindly review these detailed steps (Create an image of a VM in the portal) on how you can create an image from the already updated VM for the future reuse.
Hope above answers your question and concern. Let me know if you need additional assistance. If the answer was helpful, please accept it and complete the quality survey so that others can find a solution.
Olga Os.