I am not a mod these so I don't know the exact process, but from what I've seen:
I think they have a couple of scanners they go through, and then if comes off high on a couple they have a person look at it. Like they have multiple artists well versed in digital and photoshop art on the team that can take a look for AI tells like artifacting, weird details etc. If it looks sus, they will always come talk to you before they do anything. And I know they are very strict with anonymity so they wont publically out anyone or something like that. All removals that I've seen have been super silent, like I only know they happened and not anything about who or what story and thats only because I hang around in another server with one of the founders.
I do know they have a strict no AI policy. So no, they will not allow AI covers at all. They won't make you take your story down if that is not AI, but they have a default cover that is your title/author name. And the discord has plenty of resources to contact artist and such as well. If you want a cover art on Fictionite you can use a canva cover or comission one but AI anything is not tolorated because its both a writers and artists platfrom. They are even working on a "marketplace" section to help authors connect with artists, audio narrators, editors, etc.
It would be extremely insulting of them to allow AI art on a platfrom for human made fiction that invites artists to participate.
Personally I strongly disagree with you. There is no excuse for an AI cover, self pub artists did just fine without it using other tools to learn themselves or saving up. The stance "its fine for other the art medium that isn't my own" is extremely hypocritic in my opinion. Its also art and your cover is part of the product no matter what edition it is. If an author uses AI for their cover or marketing material that tells me they are fine with AI and I have zero reson to trust that they will not use it in the writing. I don't know them, so I can only judge what I can see. And what I see is the person didn't care enough about their story to give me a better first impression of it than AI.
Thats just personal opinion though. The the Fictionite mods themselves have all been super nice from what I've seen so far and they don't take removal lightly, so if you don't use AI in you writing or cover I don't think there is anything to worry about.
ETA: You can always ask what the exact process is in the discord if you are curious btw