By default this image gallery will make thumbnails no larger than the width/height you set automatically. 

If you want to control the thumbnails by hand, you can do that too:

1. Make sure you have attributes of the Image/File type enabled for files. (To make sure this is the case, go into File Manager > Attributes > Manage Attribute Types and make sure Image/File is checked in the File column. See picture 1 below.)
2. Go into File Manager > Attributes and add a new attribute of "image/file" type (perhaps named "Gallery Thumb" – it doesn't really matter)
3. In the File Manager, click on the image you want to configure a thumbnail for, and select "Properties" from the menu. Scroll down until you find your "Gallery Thumb" attribute, and click "Select File" next to it. 
4. A new file manager window will appear. Choose the picture you'd like to use as the thumbnail. The new file manager window should close, with the new thumbnail selected as the Gallery Thumb.
5. Now when you use that image in an image gallery, be it from a set or picked by hand, you should see the thumb you chose instead of the automatically generated one. 
6. Finally, edit the Gallery block's options. Where you can control width and height, you should now also see a list of image/file attributes for files listed. You can then choose which attribute you'd like to use as this gallery's thumbnail. Choose Gallery Thumb and you should be all setup.

Here's some pics to help: