At the launch of the iphone, everything was skeumorphic. The cover flow clearly emulated flipping through a stack of records or CD books.
Now that people don't have physical media, the metaphor changes. The new design treats the cover art like an avatar on a forum or social media site -- a small thumbnail to identify the music.
Additionally, the original iPod/iPhone typically used internal storage in your Library. Under the Apple Music era of streaming, this may be a decision to shave a few % off of bandwidth costs by only pushing lower-resolution images. And then the choice being made to not upscale low-res to screen-width and incur blurriness.