If an image doesn’t exist, they try to generate one on the fly (but it often fails repeatedly [or used to, see below] after calling a lot of channels in sequence that don’t have generated images [or possibly just expired ones]). The server response status should be 200 if the image is successfully generated, and it will redirect you with 302 to a not found image if the channel isn’t live.
As of quick testing just now however, it seems like images are loading much faster (possibly they fixed an expiration issue or cache the stream preview at a large resolution and resize it to fit). I wish they would make these previews update more frequently however (I don’t think they update at all actually).