I believe setting plex to use Local Files Only then relies on a cover.jpg to exist at the album level, as they are LOCAL. If you have embedded your artwork into the files themselves then that will have no impact.
If they are embedded artwork (tagged into your music files) then you should have Prefer local metadata enabled. If not then I would enable that and force refresh which should fix it. Plex dance might be needed but unlikely in this situation.
Your screenshot could also mean they are unmatched so if after you checked the above an example and/or screenshot of how the files are named on disk would be helpful to debug.
