What is URL masking (cloaking)

URL Masking...
... means that visitors to the domain name will be forwarded to your destination website, however the URL in their browser address bar will remain the same. Also known as Stealth Redirection or URL Hiding, this will ensure that your visitors see the original domain name and not the destination URL.

How does URL Masking work?
In the case of URL Masking the Domain Forwarding server sends the client a Frames page where the Frame Source contains the destination URL you have specified. This ensures that the URL in the address bar of the browser does not change though the client sees the destination page.

Why (sometimes) masking my url is useful?
Hide (mask) an URL or a domain name can be useful in many cases. The following are a few examples:

- Mask affiliate links, track the clicks and the conversions
As Web surfers become more knowledgeable of how affiliate programs work, more people will omit your affiliate ID or use someone else's ID when ordering. Either way you may lose commissions you're supposed to get. Using full window frame page is probably the most effective (though not perfect) way to prevent such loss. In fact practically all  affiliate link cloaking software uses this method. The address bar won't display your affiliate URL unless the affiliate site has a frame breaker (e.g.: Gmail). If visitors book mark they will come back to your frame page. This means they use your affiliate ID every time. 
Note: this feature will not work for the (very few) websites (e.g. Gmail) that has a "frame-breaker" and for the browsers that do not support frames or where the "no-frame" option has been activated from the user. In these cases the tracking-link will work as if you did not select this option

- Mask/hide your long domain and track the clicks
Sometimes your domain is too long and complicated to spell and/or write. Or you're using something like a free hosting that does not give you a dedicated domain but just a sub-directory of their domain. Using a shorter, more understandable and pretty domain is a big boost to your online marketing. 

Although masking your url address can be very effective for your marketing, in most of the cases it is not necessary and disturbs the normal navigation of the user. So be sure to use url masking only when it's really necessary.


Sources for this article:
http://en.wikipedia.org/wiki/Domain_Masking
http://www.megrisoft.com/kb/idx/0/007/article/What-is-URL-Masking-.html
http://en.wikipedia.org/wiki/Cloaking