Here's are the choices:
A) If you have iTunes "fetch" the album art for you, it's only referenced to the song file. This saves space by having the same image referenced to the entire CD. However, if you move the file to a different computer - no more artwork.
B) If you embed the artwork yourself by opening the file properties and adding it there (whether individually or by selecting a group of songs), it will embed that picture into the file. Some people don't prefer this because it slightly increases the size of each individual file by placing the image in it instead of simply referencing it to a file elsewhere on the computer. If you move the file to another computer - artwork remains.
I prefer option B. In the grand scheme of things, I don't think it takes up that much more space and I prefer the ability to move my files around without worrying about artwork or anything like that. It's just easier in my opinion. I even have an applescript that lets me select songs that iTunes has added artwork for, and it goes through and embeds the images onto the songs.
Enough rambling. The end.