Cover art is confusing. Read the wiki article on cover art for full details about all the options.
There are several locations where art can be stored for music files including inside the file. Inside the file is the BEST! Because you can't lose it, can't not know where it is, and can't separate it from the music file. So you've made a good decision by making MC store art inside the file.
If you want to see where the art is for any given music file, open the tagging window, then find the Image portion, and it will show you the image location. If the image is on disk (and not inside the file) it will show you the exact file path.
Notice that I keep writing "music". That's because cover art is handled one way for music and another way for movies, and yet another way for TV shows! I told you it was confusing.
For movies, the cover art is always stored beside the movie file. So it's in the same directory (folder) with the movie and should be named the same as the movie.
Hopefully that will clear this up a bit for you.
Brian.