How does this actually work?

A resellers client had upload over 1000 album covers, and they are showing incorrectly for all the songs. 

If you upload the covers, does the song files need to have those covers added to the ID3 tag, so that it recognizes that cover for that particular song?  Or does it adjust it a different way?

Well I have spent a lot of time on how does it work becaouse one of my client whou really want to get that feature working.

So this is the way how I understand it:

CC panel is reading cover in order which You have set in Settings->Albums->Settings tab.

I.e. My order is "Embeded, Custom", so if CC won't find album cover in mp3 file then it's going to check is there custom cover for this mp3.

Custom Album Cover is set by going into Media, click on some Artist and then right click on album name "Edit album detials".
Ove there You fill in field "Cover image url" providing url to image which should be assigned to album.
Please note that image is not downloaded on the server but in <img > tag is provided above link to image.

If custom cover image url is empty then nocover.png image apply.

I don't know about reading album covers from files. I think Your clients way to display album covers is wrong but I may be wrong

Also note that until recently there were issues with the Centova Cast image resizer that may have caused file/folder-based cover images not to show up in some cases.  Upgrading to the latest build, then clicking "Options->Purge and update library" on the media library page will pull in the covers correctly if it's this issue that's affecting you.

I think we do have the most recent, Unless I missed an update:

Version number   3.0.1.20130403.190r2212
Build date   2013-04-03

You might want to update again

Version number   3.0.1.20130405.198r2224
Build date   2013-04-05

Regarding updates, see this post for an explanation of our current build schedule.  Also note that we *usually* update the "Build Announcements" sticky thread in the General Discussion forum for each build, so subscribing to that thread is a good way to be notified about updates.

Okay thanks Steve, I subscribed to the thread there.

The last post on there was from 4-3-13... So, I didnt know about the update on 4-5-13..  maybe I missed a note about it somewhere..   lol..

Now I just need to be-rid of these cron errors, and all of our servers will be running 100%.

Custom Album Cover is set by going into Media, click on some Artist and then right click on album name "Edit album detials".
Ove there You fill in field "Cover image url" providing url to image which should be assigned to album.
Please note that image is not downloaded on the server but in <img > tag is provided above link to image.

If custom cover image url is empty then nocover.png image apply.

Okay, so that would fix the album covers If you link to an image from somewhere on the internet... But the issue this one is having is having the Album cover embeded into the file using the ID3 tag.   Its not pulling the Cover from the ID3 tag

So Im sort of stuck there.

When I try to run Re-index Album... the loading symbol just runs and runs, until I get:

AJAX request failed (504).

Then it gets stuck, and I have to clear cache/cookies, to get the page to load up again.