Coal seepage simulation based on digital images is capable of visualizing the three-dimensional seepage process and providing permeability data. However, Otsu's conventional thresholding algorithm is prone to image mis-segmentation for extracting pores and fractures, which makes the reconstructed model unable to reestablish the coal structure truly. The present work first explains the failure mechanism of the conventional Otsu algorithm for image segmentation based on computed tomography (CT) images of coal. Three weighting factors, including the slope of the mineral content fitting curve against the Otsu threshold and the approximate proportion of the target in the image, are introduced to enhance the accuracy of the threshold relation. In continuing, the MP-Otsu thresholding algorithm is proposed. Finally, the 3D fracture model of the coal is reconstructed from the CT image via the MP-Otsu thresholding algorithm. Focusing on the shape of the model, the permeability is then calculated on the basis of the pipe flow model and the parallel plate model. The contribution of fractures with various radii in the pipe model and different apertures in the parallel plate model is appropriately incorporated into the permeability evaluation. The obtained results reveal that the presence of mineral components and the low porosity of coal are the chief reasons for the failure of the conventional Otsu algorithm in the digital image segmentation of coal. The porosities calculated by the improved MP-Otsu algorithm are predicted to be 7.13 %-72.03 % lower than those of the Otsu’s method, which effectively improves the over-segmentation of fractures by Otsu and could accurately extract fractures in images. The permeability model, considering the fracture shape, gives results similar to the simulation results, and parallel plate fractures remarkably affect the permeability of the coal body. In particular, fractures with radius R > 7 μm and apertures b > 50 μm account for more than 90 % of the permeability and thus play a key role in the seepage process.