Confused ?
I am now.
I keep my cover art in the same folder as the file.
Good, but what do you actually mean by keeping? How do you add cover art? When you say "I keep" I get the impression that you have video file/files in a folder and you store an image file /files there outside MC. Then you either use the automatic or manual cover art features in MC for creating the cover art link or links. However, I guess you mean something else.
I now have an ART COVER ART and COVERART folder.
Again, the first impression is that you created those folders, but probably you mean something else.
Where should my Album art go
What do you have set in Options > File Location > Cover Art... ? The automatic tools use the specified location, but you can manually link any jpg file from any location and thus use it as cover art.
Do I need copies of my jpg video pics?
You need only one jpg file for each different cover art image (except the possible backup copies, but backing up your data is not the topic). You cannot store images inside video files with MC if you mean that (the WMV format is an exception).
As you can see, quite a bit more info is needed before anyone can understand your situation.