I've read some people's points that peasants are an income source, not covenfolk. Could somebody explain this to me? I don't see why they'd be left out of things like determining overall loyalty and similar stuff (though I understand their exclusion from food and material costs, since that's assumed to be coming out of the income).
(Not to be confused with an inverted version of the question. Obviously not all or even most covenfolk would be peasants.)
If they don't live at the covenant, they aren't covenfolk. If they do live at the covenant, they are. It is possible to have people who work at an income source for a covenant not be living at the covenant. One covenant I'm involved in operates a book bindery and manufactures mundane books. The employees are not covenfolk.
What Jonathan said.
I'd add that this is the same way as most nobles derive much of their income from the peasants that live on their lands. They are not the nobles' servants, but still pay them taxes and possibly rent for the land they cultivate.
In the same way, if peasants are a covenant's source of income, then it means that the lands belong or are under the control of the covenant. The peasants simply pay the covenant as they would do to a noble occupying the same role. They probably don't even know that the taxes they're paying go to the magi.
It also depends on context. For example a peasant living at the covenant (maybe the lands they work are pressed up against the covenant) might be considered covenfolk in terms of loyalty and adventures, but on the costs spreadsheet they would not be included. What is or is not covenfolk is determined by context, and in some cases a peasant might be included, but they certainly are never inherently included.
Covenfolk, generally, are closely held. Peasants are not.
Covenfolk are the staff, experts, and servants, relatively trusted mundane people magi may have disclosed some secrets to. I tend to assume covenfolk know of the Order and other covenants, and foster and intermarry among them, with varying levels of knowledge. YMMV.
Peasants are generally regarded as simple, brutish, dull mortals, often unaware that their masters are magi.
I also assume that most, nearly all, covenants have covenfolk, but some or many covenants do not have or need peasants.