Cloaked URL is a local redirect that sends the user to the destination URL but allows you to share a shorter more friendly URL with your readers.
What is the difference between Masked URL and Cloaked URL?
Masked URL is hiding the URL completely, often using javascript to mask the URL in the browser. This is pretty much a violation of Google Webmaster Guidelines and also WordPress.org’s plugin terms.
Cloaking, on the other hand, doesn’t hide the destination URL. It’s merely a user-friendly version of your affiliate link and it is not in violation of Google or WordPress.org.
When should you not cloak your affiliate links?
The only time we suggest NOT cloaking your affiliate link is when the affiliate program's terms specifically forbid it.
A great example of this is Amazon who has a clause in their terms and conditions to say you aren't allowed to cloak or use a redirect.
ThirstyAffiliates free version has a great feature called Uncloaking which lets you utilise cloaked links as normal in your blog posts when writing them, but uncloaks the link on the front end to be compatible with Amazon's terms of service (and any other program that requires it).