An iTunes file that has no cover artwork is a bit sad, it lacks character and it's difficult to spot when you're quickly sifting through your library. And although it's easy enough to grab cover artwork for commercially available music and movies (iTunes actually allows you to do this by command- or right-clicking the file and choosing Get Album Artwork), you probably won't find any artwork for your old band's demo tape. The solution, of course, is to make your own cover artwork and add it to your songs, shows, or movies.
Create an album cover
Open Photoshop CS3, CS4, or CS5 and choose File->New, or in the case of Photoshop Elements 8, choose File->New->Blank File. Now you'll need to set the pixel resolution of the canvas. Artwork included with items purchased through the iTunes Store is typically 600-by-600 pixels (at 72 dpi), and for consistency, you should stick to this resolution. (You can add larger artwork if you like, but keep in mind that the bigger the image, the bigger the file size. A 5MB song file can double to 10MB with the addition of high resolution artwork.) Once you've set the resolution, click OK.
Great album cover artwork begins with a strong concept. So, you'll want to fill your canvas with a fun background and perhaps some funky text. But first, you'll need to find these components. Here's a roundup of sources for art, photos, and fonts.
Art: It's always fun to use your own artwork on the cover, whether it's hand-drawn or hand-painted (fire up your scanner!) or something you've created in Photoshop. Those who aren't as artistically inclined can find awesome artwork and interesting textures at sites like DeviantArt. Just be sure to check that the artwork is available via Creative Commons license, meaning that you have permission to use it with certain conditions. (If you're not sure whether your use or purpose qualifies, email the artist for clarification.)
Photos: Your own photos are a natural choice for your cover, so be sure to launch iPhoto, Aperture or Lightroom and see if you can find anything that fits your album concept. If you're not much of a photographer, you might try searching Flickr's Creative Commons. Thousands of pictures are available with a Creative Commons licenCe, and you can zero in on those quite easily.
Fonts: You can find thousands of cool and quirky fonts online, many of them for free. Check out sites such as Dafont.com, 1001 Free Fonts, and Font Freak. I'm especially fond of John Martz's toyware cartoon and comic book fonts.
It's difficult to set rigid rules for creating album cover artwork, but here are a few guidelines to help you get started. Choosing a background image can be a challenge, and you must keep in mind where you want to position your text. This area should be relatively low-contrast (sky, a sandy beach, or with a painting or drawing, a visually simple area).
Once you've chosen the background, open it in Photoshop or Photoshop Elements. The first thing you'll want to do is crop the image to a square. Choose the Rectangular Marquee Tool, hold down the shift key (to lock the aspect ratio to a square), and drag the cursor across the area of the image that you would like to use. Now choose Image->Crop. You should also scale down large images before pasting them into your cover artwork canvas. In Photoshop, choose Image->Image Size, enter a pixel resolution of 600-by-600 pixels, and click OK; in Photoshop Elements, choose Image->Resize->Image Size, type in a pixel resolution of 600-by-600, and click OK (make sure the Constrain Proportions and Resample Image boxes are checked, and change the Resolution to 72 dpi before adjusting the width and height). Choose Select->All and then Edit->Copy, and then flip back to your cover artwork canvas and choose Edit->Paste.
Now you can add a title. Click the Text tool, select your font, and then click the part of the canvas where you want to write. Avoid using overly small or thin text, as it may not be legible on the iPhone or iPod Touch. You should also steer clear of super-saturated colors as they can be difficult to read. If you're feeling a little wild, you can add nuance to the text using Layer Styles. (In Photoshop, choose Layer->Layer Style->Blending Options; in Photoshop Elements, choose Layer->Layer Style->Style Settings.)
Getting your cover artwork just right can take some time; keep tweaking until you're happy. And be sure to save your file regularly in the standard Photoshop/Photoshop Elements file format.