I have posted this question on Drupal Answers, but I don't know if it is a Drupal problem or a Windows problem, so I am posting here in case it is windows. The Drupal Answers question has screen grabs which might explain this clearer- https://drupal.stackexchange.com/questions/149671/incorrect-file-permissions-when-images-are-uploaded-in-the-ckeditor-wysiwyg-usin.
I'm using Windows Server 2012. I have a folder which images are uplaoded to from the Drupal website. The folder has the correct permissions, but wehenever a new file is uploaded, it has incorrect permissions, preventing it from being displayed on the web.
The newly added file inherits the incorect permissions from 'Parent Object' instead of it's parent folder. Disabling, then re-enabling inheritence applied the correct permissions, inherited from the parent folder.
The solution was to enable inheritance and edit the permissions on C:\windows\Temp. The answer was posted on [Drupal Answers].1