What's a cover letter?
A cover letters primary purpose is to grab the attention of whoever you've written to. If you're applying for a job, you want them to read your CV and your cover letter should encourage them to do so. Why are you so amazing? Why are you exceptional? Why should they read more? Why should they consider you?
You shouldn't think of a cover letter as being part of your CV - it is similar to the mission statement or personal statement in your CV in that it's primary intention is to get people to spend a few minutes more on your CV/Resume or job application than anyone elses.
If you are still wondering "what is a covering letter?" then you should think of the blurb on the back of books - they don't give away the content, they hint at it and make big news of any great stuff other people have said, any awards they have had, any great reviews they have received etc. Your cover letter should be similar - it should highlight the biggest reasons you can think of for why people should consider your application/CV/resume.
What really is a cover letter?
Cover letters exist in this day and age thanks to the inordinate amount of job applications companies receive for positions they advertise. It is becoming more and more impossible for employers to read every CV/Resume/job application and a cover letter is that little bit of extra effort you can give to increase the chances of your application actually being considered. Bear in mind that for any one position companies can often receive hundreds, if not thousands, of applications. A great cover letter will never guarantee a job but what it will do is significantly increase the chances that your application is actually considered.
Consider this carefully - you're trying to get your application to the short-list out of thousands of other applications so you need to get personal with the person who is filtering the applications. Convince them that you have lived your entire life to work in this position, or that you have some new profound experience which makes you ideal for this position, or rely on your knowledge and understanding of the company and role to convince them to put your application onto the shortlist.
This means you have to get personal - you must figure out who are the people who are going to receive your cover letter - make a phone call if you have to prior to sending your cover letter. If it's an agent you're dealing with, your cover letter should be tailored towards how much success you've had at winning interviews you're put into - agents make money if you get placed so the more you can convince them that you WILL get placed, the likelier you are to be on their shortlist.
If, on the other hand, your cover letter is being sent to the actual company you will hopefully be employed by then what's in your cover letter should change significantly - you should now tailor it to the employer and explain how much you admire their company, who you know from their company, what respect you have for their company and how your experience/qualifications/talents/whatever are aligned with what you believe the company is trying to achieve with this role.
You don't want to put too much sales nonsense in your cover letter - remember, it's real human beings reading it - but you still shouldn't hold back from being extravagant - if you can claim you've been expert in this role since you were a child then do it! It may make them laugh, but it will still make them more likely to read and consider your application and read your CV/Resume.
Hopefully this helps answer the question of what really is a cover letter - I know there are plenty of people out there who feel resentful towards this kind of stuff even existing but if you understand the numbers of people applying for roles then it should be easy to see why they exist and how you can capitalise by making a cover letter which makes your CV actually be read. Whether you actually then get hired is up to the content of your CV/Resume of course...