You don't need to create a library, in fact, there is a same library available for doing exactly what you want to!
It's called Picasso. You can find it here.
Also note that if you want imageView.DisplayImage(URL); you should create a new instance of ImageView class, because it doesn't contain this method. I recommend using DisplayImage(URL, imageView);.
But in case you REALLY WANT to do this, here you go:
1- For creating a library, create a New Android Application Project, and in the second window, check Mark this project as a library option. Also notice that we don't need Activity.
2- Create a new class, such as ImageUtils.java in the newly-created project. Here you need to put the DisplayImage() method:
    public static void DisplayImage(String URL, ImageView imageView) {
        new DownloadImageTask(imageView).execute(URL);
    }
And this for the DownloadImageTask class : 
public static class DownloadImageTask extends AsyncTask<String, Void, Bitmap> {
    ImageView imageView;
    public DownloadImageTask(ImageView bmImage) {
        this.imageView = bmImage;
    }
    protected Bitmap doInBackground(String... urls) {
        String urldisplay = urls[0];
        Bitmap imageBitmap = null;
        try {
            InputStream in = new java.net.URL(urldisplay).openStream();
            imageBitmap = BitmapFactory.decodeStream(in);
        } catch (IOException e) {
            // Probably there's no Internet connection. Warn the user about checking his/her connection.
            Log.e("Error", e.getMessage());
            e.printStackTrace();
        }
        return imageBitmap;
    }
    protected void onPostExecute(Bitmap result) {
        if (imageView != null) imageView.setImageBitmap(result);
    }
}
3- Execute your project as an android application.
4- There should be a jar file under the bin folder. It's your library. Import it to your other applications and use it. In that applications you can use it with this code:
    ImageView imageView = (ImageView) findViewById(R.id.img);
    ImageUtils.DisplayImage(URL, imageView);
5- Don't forget to add this permission to the apps that use this library: 
<uses-permission android:name="android.permission.INTERNET" />
Hope it helps :)