Get first attached image in post content and set as featured image.

auto_featured_image.php

<?php
function autoset_featured( $new_status, $old_status, $post ) {
// Only run on manual saves of posts that are being published or have been published.
	if ( $new_status != 'publish' || wp_is_post_autosave( $post->ID ) || $post->post_type != 'post' || empty( $post->post_content || has_post_thumbnail( $post->ID ) )) {
		return;
	}
// Is there already a thumbnail set?
	$already_has_thumb = has_post_thumbnail( $post->ID );
	// Yes. Ok, we are done here
	if($already_has_thumb){
		return;
	}

	// No. Is there an image in post_content?
	$imageclass ='';
	$dom = new DOMDocument();
	@$dom->loadHTML( $post->post_content );
	$search_dom = new DOMXPath($dom); //allows xpath queries like the one below
	$foundimg = $search_dom->query('//img'); // find first image
	// No image? Ok, we are done here
	if (0 === $foundimg->length ) {
		return;
	}
	// Yes image exists
	// Used to check if maybe attachment and against existing attachments
	$imageclass = $foundimg->item(0)->getAttribute( 'class' );

		// Was it added as a standard attachment? Let's check for 'wp-image-' in the class.
	if(strpos( $imageclass, 'wp-image-' ) == FALSE ){
		// No. Side-load the image and attach it
		$image_src = $foundimg->item(0)->getAttribute( 'src' );
		$tmp = download_url( $image_src );
		$file_array = array(
			'name' => basename( $image_src ),
			'tmp_name' => $tmp
		);
		if ( is_wp_error( $tmp ) ) {
			@unlink( $file_array[ 'tmp_name' ] );
			return $tmp;
		}
		// Used media_handle_sideload as media_sideload_image did not return ID of attachment.
		$added_attachment = media_handle_sideload($file_array, $post->ID);
		set_post_thumbnail( $post->ID, $added_attachment );
		return;
	}
	// Yes it was attached. Let's check the attachments and set the match as thumbnail
	if ( ! $already_has_thumb ) {
		$attached_image = get_attached_media( 'image' );
		// Compare each attached image with the first image retrieved from post_content
		if ( $attached_image ) {
			foreach ( $attached_image as $attachment_id => $attachment ) {
				// Check if an attached image matches the first image found in content
				$current_attachment   = 'wp-image-' . $attachment_id;
				$first_attached_image = strpos( $imageclass, $current_attachment );
				if ( $first_attached_image !== FALSE ) {
					// If match found, attach to post as thumbnail/featured image
					set_post_thumbnail( $post->ID, $attachment_id );
					return;
				}
			}
			// Last ditch effort to find an attachment
			$guess_attach_id = explode( ' wp-image-',$imageclass  );
			$maybe_attachment = $guess_attach_id[1];
			if(wp_attachment_is_image( $maybe_attachment )){
				set_post_thumbnail( $post->ID, $maybe_attachment );
			}
			return;
		}
	}
}

add_action( 'transition_post_status', 'autoset_featured', 10, 3 );