Hello Dhawal,
A shortcode lets you do nifty things with very little effort. Think of a shortcode as a shortcut to add features to your website that would normally require lots of complicated computer code and technical ability.
This means that you usually use the [image] shortcode inside a text element or a content area element. You CANNOT use the image shortcode within the image element. The image shortcode is actually a feature of the classic image element where you can use a shortcode if in case adding the classic element is not possible. For example, you are trying to insert an image in you sidebar widget area. Since you cannot edit the sidebar widget area using Cornerstone, you cannot use classic image element. Then, this is where the [image] shortcode will come into play.
If you are looking to replicate the image variation shown in the demo, you can actually tweak the border radius in the image element settings. For example, having a rounded corners can be done by adding less than 20 pixel for the border radius in the element settings. Making it to 50em or 50% will give you a super rounded corners of a perfect circle depending on the dimensions of the image in you element.
Hope this will help you explain more about the image shortcode.