It's pretty simple: A Bitmap is an Image, but an Image isn't a Bitmap. In the same way that an Apple is a Fruit, but a Fruit isn't an Apple.
Your method is set to take a single parameter, which it declared as a Bitmap. You are calling it and trying to pass an Image, so it is trying to promote the Image to a Bitmap and (quite correctly) says it cannot do that, because it "does not know how to cannot convert from 'System.Drawing.Image' to 'System.Drawing.Bitmap'" any more than you can take a generic Fruit hidden in a paper bag labeled "Fruit" and make it into an Apple. You can cast down the inheritance chain, but it takes an explicit cast to go up.
There are two ways you could cure this:
1) Change your method to accept an Image instead of a Bitmap as it's parameter - you can then pass it either perfectly happily.
private string DecodeImage(Image image)
2) Change your calling code to provide a Bitmap instead of an Image, if necessary by explicitly casting it:
textBox1.Text = DecodeImage((Bitmap) pictureBox1.Image);
In this case, you want the second option, since Bitmap has the GetPixel method, and Image doesn't.