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Don't quote me, but I believe Gracenote is a music database stored on the hard drive. When you insert a CD, each disc has a unique identifier that Gracenote uses to pull up data on the track listing, album name, etc. and probably also includes artwork.
I'll try to find a CD I've never fed my car before and see what happens. I know I've seen the Gracenote logo overlaid on the disc screen before when it was working its magic.
It's a index of albums and song titles. It identifies the albums, songs, artists and allows the voice commands to recognize this data. For example, you can say: Play Artist Bob Marley.
All I know is that the cover art is transferred from either your iPod or CD. One point of note... I had a standard iPod and it took quite a while for the cover art to download, and when Gracenote is downloading you can't switch to the next song. I traded for an iPod Nano and now it downloads really quickly.
Well I tried 2 CD's, not new releases by any means, and Gracenote did nothing. No artist or track names. I think it does that for the iPod only.
I tried the CD's & nothing as well. I think you are right & it's only for the iPod. But the iPod already has the song name, artist, album cover already listed.
You can transfer songs from your CDs to your iPod and the cover art will show up. I never play CDs anymore, so I wasn't aware they didn't show up. All mine are played through my iPod.