If you want to be able to upload larger files, you have to create a custom php.ini file in the Gallery2 directory, and add the following lines to it:
upload_max_filesize = xxM
post_max_size = xxM
NB. Please note that you have to replace xx with the desired filesize, which is measured in MegaBytes.
* Please note that not all hosting companies allow the PHP values to be overridden by custom php.ini files.