I keep my cover art in the album directory as folder.jpg.
Why?
First Windows XP likes it this way, when you use Explorer to view the folders you get a tiny cover for each one.
Second, if you add cover art to each file, it duplicates the data. Not much per file, perhaps 10 k. But over 1000s of files it adds up.
Third, the players I use support folder.jpg so what is the benefit of adding images to the tag? None for me.
Fourth, if I find better art (not often, but occasionally I do), I do not have to retag all the files the are affected. Simply replace that album's folder.jpg and I'm done.
Some people like to keep front, back, and liner notes. Why? I don't know, completeness I guess. But I don't know of any app that will display all those.
If you "store cover art inside file" you will add the image to each file's tag, at least if it is an MP3. For other formats, I have no idea.
What links the art to the selection? I'd suspect that the app looks for a file named "folder.jpg" in the same directory and if there, displays it.
Hope this helps.