Hi Janet,
You should be able to set the cover art in iTunes (which I presume you are using since you have an iPod) by displaying the audiobooks information (that's a right-click on the audiobook and
Get Info or Cmd-i on the keyboard). There just select the
Artwork tap and drag the art work from your desktop into the empty image box. Hit OK.
If for any reason you are not using iTunes, download a free tool like
Subler or
MetaX. With Subler you will have to change the file suffix from .m4b to .m4a to open it, though. You can also change chapter entries after the fact with this program. MetaX might be a little over the top for just adding artwork.
Have fun
Manuel