I came to this thread with the same problem. I just wanted to confirm what Merle Wait had found. This feature used to work in older versions but seems to be broken now. When trying to create an link to a website I get the same issue (Using the latest Chrome browser)
While drafting an email, I
Highlight a piece of text
Click the <link> button
enter the web address
<OK> is highlighted in green, but I am unable to select it. The only option is to select <cancel> or hit the <x> in the upper right corner, prompting verification that I would like to close the page. When I agree and the window closes, the text does not have an embedded link.