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iTunes doesn't embed the artwork in the mp3. It stores all the album artwork under /user/Music/iTunes/Album Artwork. It's the same on your iPod.
 
I don't know if that's how it works buying music off iTunes but I mean my own files with no album art in it. I can get the album art as a separate jpeg image. Should I embed them into the file? Or how can I make iTunes/iPod display the image with the associated album without embedding it.

If I embed them into the file, it shows up in iTunes otherwise it doesn't.
 
I personally embed ALL album art in each ALAC file, and it's high res 1500x1500 Google album art, not the low res 600x600 Apple has.
 
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