Link Cloaking is when you show your visitors an internal link when they mouse over an affiliate link so that the visitor doesn’t think they are leaving your site.
its basically masking your links so that your visitor (or search engines) see one links but when clicked, it redirects to another link
link cloaking is a way to change your original URL provided to a set of unique URL which contains alphabets and letters only. As pointed by Maslova, tinyurl.com is a good service to do that.
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 user's 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. As of 2006, better methods of accessibility, including progressive enhancement are available, so cloaking is not considered necessary by proponents of that method[who?]. Cloaking is often used as a spamdexing technique, to try to trick search engines into giving the relevant site a higher ranking; it can also be used to trick search engine users into visiting a site based on the search engine description which site turns out to have substantially different, or even pornographic content. For this reason, major search engines consider cloaking for deception to be a violation of their guidelines, and therefore, they delist sites when deceptive cloaking is reported. source : wikipedia