There are a number of ways to put album art into itunes which is then updated on your ipod
The method I use is firstly select the album in itunes i.e. click the album name you want to add art to, then either right click on the file or go to the tool bar and click file, then get info. A screen appears which has an empty square box in the right corner, the open screen also contains information about the album.
Then find a picture of the cd art you want to import, I use amazon but others are available, then copy and paste the picture directly onto the empty square, you should get a message something like, do you want to update all items. Click okay and the artwork will then appear against all tracks on the album.
The picture size is reduced accordingly to fit into itunes so it takes up minimal space, although you will notice an slight increase in the size of the mp3 file
.hope this helps.
If you just want to add artwork to a single file or multiple files, you can just highlight the files you want to add to and carry out the same procedures.
Another way to add artwork is when you in itunes and you are playing a track, an empty square appears in the bottom left corner of the screen which might say no artwork displayed you can drag and drop pictures into this space which will add the artwork to that particular file only but not the rest of the album