I must be super blind, but I've looked everywhere I can think of and haven't figured out how to add album art. Could someone tell me how I can add album art to files so it shows up in iTunes?
Does iTunes support album covers inside tags at all? I always had the impression it uses its own DB. Anyways, you can add covers from the 
Tags window (ALT+T)
It does 
The iPod uses cover art from its internal DB (which is filled by iTunes).