First you need to understand how LMCE handles metadata.
It is in 2 locations, generally - id3 embedded tags or files and the LMCE media database internal to LMCE. The internal daemon UpdateMedia is responsible for synchronising the 2 sources.
When you add media, if it already has an embedded id3 tag (which can contain metadata and coverart), UpdateMedia will scan both the existence of the media file and its metadata into the LMCE database. From then on any changes in metadata either in the database or in the id3 tag itself will be synchronised between the two.
The id3 embedded tags are standard for mp3 files and a few other audio files, but that's about it - not video or other audio files. So if you add mp3s that have id3 tags already then your job is done. LMCE will suck them into its database. From then on you can edit them using any normal id3 tag editor or even Windows Explorer's Properties tab, or in the LMCE Web Admin tool under the Files and Media menu, Media File Sync. UpdateMedia will keep them in sync.
For media that do not support id3 tags you can get the metadata in in several ways. When you rip a disk (DVD or CD) LMCE will attempt to get the attributes from various Internet sources. You can manually enter them using the Files and Media menu again, and there are a couple of other tools in the Web Admin to help you populate the attributes or cover art manually/semi-automatically from the Internet. These are then written into the LMCE media database.
Now when UpdateMedia comes along and finds this metadata in the media database for media files that do not support id3 tags (video, pictures, some audio filetypes) UpdateMedia automatically creates a new file in the same folder with the same name plus a .id3 extension (ie video.avi & video.avi.id3) and writes the metadata into that file. From then on UpdateMedia keeps that file and the database in sync so they need to be in the same folder. As the id3 file is a LMCE thing you can only edit the metadata in the Web Admin tool. They are created so that if you ever rebuild your LMCE system, you don't loose all the metadata and coverart that you set as UpdateMedia will rescan those files back into the new database when it finds all the media again.