At Admin Panel -> Settings -> Switches, the "Cloak URLs" switch allows you to hide the destination URL on links. The URL which is cloaked is the website URL field on the listing. When the site visitor mouseovers the link, it'll show link.php?id=x instead of http://destinationsite.com. Search engines will also see the link.php?id=x version. When clicked, the link does a 301 redirect to the destination URL (note that this will transfer most but not all of the pagerank that a regular link would).

In most cases, you will not want to cloak URLs and should keep this switch off.