Cloaking is a black hat search engine optimization (SEO) technique in which the content presented to the search engine spider is different to that presented to the users' browser. This is done by delivering content based on the IP addresses or the User-Agent HTTP header of the user requesting the page. When a user is identified as a search engine spider, a server-side script delivers a different version of the web page, one that contains content not present on the visible page. The purpose of cloaking is to deceive search engines so they display the page when it would not otherwise be displayed. source: wiki
Clocking in one of the unethical SEO techniques which can be defined as following: Simply put, cloaking is any process that involves presenting search engines with one set of information and the visitors with another. The copy presented to the search engines is highly optimized and hence the search but may rank it higher. When a visitor clicks on the link he is either redirected to a new location using CGI, JavaScript or Meta refresh tags or is tricked to enter a new page by using a mouse-over function. Meta redirects are also used by webmasters today for legitimate reasons. For instance, a website owner who has changed his domain name would need his older visitors to automatically get to his new site using a redirect. This is where search engines face a challenge in identifying the legitimate sites from the illegitimate ones. But most search engines today are able to identify almost all kinds of cloaking techniques to a large extent.
I hate to say it but Wikipedia is wrong, there's many legitimate uses for cloaking and it's not always used to deceive search engines. Using IP delivery for Geo Targeting, user agent detection for page display to suit the browser, flash or javascript support to deliver the best page and the list goes on are all "cloaking" but legitimate. Even Google uses cloaking.
Congratulations for the argument!! You have been long engaged in the field I believe. Focusing on the topic, please cite an example where you found big G cloaking. The wiki version is intended for the beginners only. Anticipating your comments soon.
There's many places Google cloaks, but i will point to one of the more sneaky types. Here's an article on it by XMPC who's a member here. http://www.slightlyshadyseo.com/index.php/youtube-is-cloaking-so-why-cant-i/ Here's another one where they were cloaking "and" keyword stuffing http://www.threadwatch.org/node/1774 Also here's a post by Rand about different types of cloaking, both legitimate, not legitimate and borderline examples: http://www.seomoz.org/blog/white-hat-cloaking-it-exists-its-permitted-its-useful
Cloaking is one of the earliest types of the so called black hat SEO techniques and today all search engines can easily notice this and the sites will be having problems.