With some images, but not others, when pasted and resized in a Writer document, the image is vertically compressed so that it does not occupy the full frame. I have checked other topics, and there do seem to be problems with images in Writer. But none of the posts I’ve read give me a solution. I’m attaching an image to show what I mean. The image is supposed to be the same size as the frame in which it sits, but there is blank space above and below. It is anchored to Paragraph and text is wrapped After.
It is difficult to issue a definitive statement only from your screenshot. To make things worse, you didn’t even enable View>Formatting Marks.
From your description, it seems you have an image inside a frame, i.e. two “objects” which can be controlled in Writer as *frames". But, frames interact with text only. They don’t interact with each other. This means that “a frame sits inside another one” makes no sense. You can’t request that a frame “expands” or “shrinks” to the size of the englobing one because there is no nesting relationship.
As a general rule, prepare your images outside Writer. Scale, crop and resize them so that you use them “as is”. This will avoid a lot of problems later.
For an accurate analysis, attach a 1-page sample document and mention OS name, exact LO release and save format.