Answers! I finally ran some tests. First, the settings & background criteria:
* This was done on a USB drive, so I can't guarantee the same results with any other media (CDs whether audio or data/MP3).
* I used MP3TAG as the tagger.
* I used an MP3 for my testing that did NOT have any embedded cover art TAGs, yet displayed artwork when played. Specifically: Artist: Jimmy Buffett, Album:Fruitcakes, Title: Uncle John's Band. It displayed the Fruitcakes cover when I played it.
* I made sure there was NO artwork on the USB drive (folder.jpg, or cover-art.jpg, etc), and I made sure there was no art work embedded to start off. In fact, I used a newly formatted USB drive to make sure it was empty.
* And just to confirm that it goes online to get the art work, I pulled my car into a garage that I know prevents a decent online signal, and no artwork displayed. I then drove out, and it popped up.
Ok, this was all BEFORE I started the tests, to set the baseline.
First discovery, if there is cover art embedded (TAG'ed) in the MP3, it will use that first. I embedded a random JPG in this MP3, and it displayed that rather than the Fruitcake cover. So embedded Cover-TAGs override any online artwork. Removed that TAG and it went right back to the online cover it had found.
Then I checked what TAGs were already present in this MP3. ARTIST, ALBUM and TITLE were all there, along with several others. So I started playing with those three.
It turns out, and this seems obvious in hindsight, that the cover art is retrieved based on ARTIST and ALBUM. TITLE, which is the individual song title, is ignored. As long as those two were accurate, the cover art was correct. I could change the song title to anything, even random strings, and the cover art stayed correct. Whatever I changed the TITLE to was displayed on the bottom part of the screen, as it always does.
However, changing the TAGs ALBUM or ARTIST to anything else was enough to kill the art display. I haven't played around with slight misspellings, so I don't know if an exact match is required, or if there is some fuzzy logic being applied. I will try that in the next round of experiments.
It also totally ignores the actual file name. Only TAGs affect the display. I changed the filename to some random string, and all behavior remained as described above.
My next experiments are going to include cover size/resolution, and see what affect they have on the display. Better, worse, etc. Are there limits to resolution resizing, for example. I'll also play with using my own cover art, to get artwork that I want, rather than what Gracenote wants me to see. And the fuzzy logic misspelling I mentioned above.
One thing I did not test is whether folder.jpg in the folder will override anything--either the embedded TAG or the online results. I probably won't test this, as that's a WMP default, and I don't use it or rely on it.
2013 550i Space Gray, M-Sport--del Dec 2012
2013 X5 5.0 Orion Silver--del Dec 2012
2009 X5 4.8 White (w/hitch)
2007 550i Monaco Blue, Sport
2004 X5 4.4i
2003 540i M-Sport w/Dinan mods (last of the great E39's)
2002 X5 3.0
2000 540i Sport
1995 525i Sport