Most 'fake' jobs in portfolios are often student work. That doesn't mean you can't come up with your own projects, of course. You just want to try and keep to the same methods that are used in student work--which is to say that even though the project is 'fake' in that there is no real, paying client, the project is treated as if there were a real, paying client.
This is what makes for good design: a good problem. Design is a solution to a problem. That problem first has to be defined.
Before making a fake design you first need to make a fake client and a fake problem.
This is usually handled as a form of creative brief. There are many examples of creative briefs out there. Here's just one from a quick google search.
At the simplest level, though you'll want to define a few things:
- who is the client?
- who is the clients' target audience?
- what is their objectives they hope to achieve with this design?
By having a few of these figured out, your design can then be seen as an answer to a problem. People looking at portfolios want to see solutions.
Of course, you can do this backwards. Maybe you came up with a really cool logo. You could just slap that into your portfolio and say "I made this because it's cool" but it'd be better to take the time to come up with a back story for it. Then you can say "I came up with this particular solution to meet the client's needs of x, y, and z and I met these needs via..."
PS: The number of people that make a living designing album covers is pretty small. So keep that in perspective.