In general: We import cover art from JPG or PNG images with filenames that indicate a front cover image (“cover”, “folder”, “front”) from the directory containing the media files. We also import cover art from the media’s tags.
As @brian said, all the cover art we discover with your files is preserved in our database although we may choose to use artwork retrieved from our metadata service if it’s higher quality.
if the box set is a compilation of an artist’s work (which generally implies the same cover art for all discs in the set e.g. Rod Stewart - Storyteller: The Complete Anthology 1964-1990) I store a single instance of folder.jpg in the parent folder
We don’t currently import cover images from a directory above the media files, as you describe here. I agree that we should pickup these images.
if the box set is a reissue of a series of albums (which for me generally implies I want the original cover art for each album e.g. Pink Floyd - Discovery Box Set) I store each album’s cover art as folder.jpg in the respective sub-folders
We don’t support separate images for the individual discs of an album – there is just one image for the entire album. So in the case of this organization scheme, we’ll import all of the folder.jpg’s and pick the largest one to use as the album image.