Image Overlay is a module to allow users to "draw" on images with JQuery UI & canvas, and save the result as an image node. It's very rudimentary right now and lacks important security checks.
To try it out live,make sure you are logged on (you can use your drupal.org logon). Go to image galleries on this site and select an image to view. Hit the tab "Add Overlay".
This module does not work with IE yet.