Cloaking is like making one domain look like another...
Say you had:-
http://domain1.com set up
and you wanted to host domain2.com at the site but you can only host one full domain.
So you setup:-
and set domain2.com to 'cloak' subdomain.domain1.com
Now if you type in subdomain.domain1.com/dir/file.php
it would be the same as:-
So basically you're hosting 2 full domains at the expense of a subdomain...
I don't know if that's what you meant by your initial question...