AZW3, not AZW.
AZW is a renamed MOBI.
AZW3 is a successor format.
AZW3 is preferred because it supports more features, but older devices don't support it, and the Keyboard needs the last firmware update to read it.
Don't worry though -- MOBI Output preferences will cover AZW3 as well.
As regards missing covers:
if a book is an EBOK, (well, if it has an ASIN really,) the Kinde thinks it comes from Amazon servers and tries to pull the cover thumbnail from there.
If it is a PDOC, Amazon extracts a cover thumbnail fom the book file.
Whoops, what happens for books with rigged ASINs? No cover is on Amazon, but the Kindle firmware is too stupid to extract a cover from the ebook file.
calibre is designed to work around these problems. When sending a book from calibre to a Kindle, if the book has an ASIN a cover thumbnail will be generated by calibre and added to the folder
Code:
[userstore]/system/thumbnails/
(userstore is user-visible storage a/k/a Kindle Drive)
If you use drag-and-drop, calibre doesn't know and cannot do anything about it.
Moral of the story -- let calibre do the work, that is what it is good for.