I’ve never seen it work properly. You can make it work in specific sizes, instances, and surroundings, but logos using real life images don’t work in generality. The reasons why are as manifold as the images we can use, but as a principle it all comes down do legibility and attention.
Logos are illustrations
We use vector graphics to design logos to make sure that we get the highest quality possible in any size. PNG and JPG files lose quality if they are scaled up beyond their maximum resolution. The result: They get pixelated, look blurry, and make a company (and the designer) appear unprofessional.
Most images can’t be converted into vector graphics. Therefore, by using them, we cannot ensure the highest design quality for any resolution.
But what if we know all the needed logo design sizes upfront and we can create high quality results in any of them, does it now make sense to use images in logo design?
Images rarely work in small sizes
At some point, we need our logo design on a business card or even as a favicon on a website. The smaller the scaling we need, the less details the viewer can identify in the design - this is one of the reasons why minimalism in logo illustrations works so well.
Images are generally more detailed than illustrations. Most of them don’t work as small logos on business cards, and surely not as favicons.
Another reason to stay away from images in logo design:
Mixing illustrations and images is hard
I don’t want to claim that it never works, but I’ve never seen the mixing of illustrations and images work in logo design. It works in art, as part of collages, and even in magazine pages, but all of these media can expect the viewer to invest more time into them.
People look at art to enjoy it, they look at collages to understand them, and they look out of interest at magazines they’ve paid money for to read. The luxury of having so much attention from the viewer simply isn’t there in logo design. Only logo designers themselves look at logos for inspiration, education, and pure fun – anyone else doesn’t.
Mixing illustrations and images automatically adds a new level of details to a design. Thus, the design becomes more demanding of the viewer's attention. And logo design should be as least demanding as possible to be as easily memorisable and identifiable as possible.