If you are new to the world of SEO you may not have heard of the term cloaking. If you have there is some disagreement about the definition of cloaking.
Dictionary.com gives this definition cloaking.
1: A loose outer garment, such as a cape.
2: Something that covers or conceals: a cloak of secrecy.
Number two is what is important in regards to the search engines. Covering or Concealing.
Google specifically states not to cloak in their Quality Guidelines. The other SEs do as well without using the specific term.
Matt Cutts recently defined cloaking from Googles point of view, and I’m fairly certain that Yahoo and MSN would agree.
Here’s the short answer from Google’s perspective:
IP delivery: delivering results to users based on IP address.
Cloaking: showing different pages to users than to search engines.
IP delivery includes things like “users from Britain get sent to the co.uk, users from France get sent to the .fr”. This is fine–even Google does this.
It’s when you do something *special* or out-of-the-ordinary for Googlebot that you start to get in trouble, because that’s cloaking. In the example above, cloaking would be “if a user is from Googlelandia, they get sent to our Google-only optimized text pages.”
So IP delivery is fine, but don’t do anything special for Googlebot. Just treat it like a typical user visiting the site.
A lot of people took exception to what Matt Said. Primarily posters at TW. Why did they take exception? They are either Spammers or are friends of Spammers who try to defend them.
Spammers and their friends always try to cloud a simple issue. Cloaking is deception. Spammers and their friends try to make all IP detection out to be the same as deception.
It is not. Alan Perkins wrote about this back in 2001 and it has not changed. Alan dealt with several issues relating to SE Spam in that article so you will need to scroll to the bottom of the page to read his comments on this particular subject.
Matt Cutts said basically the same thing in his answer in his blog.
Here is a related thread at IHY that I think you should read. The thread is about a well known Clocker Fantomaster and e-mail that he sent out.
Stay away from companies like www.fantomaster.com.au or www.fantomaster.com. Believe me the service is expensive, and at some point in time it will bite you in the but regardless of what Fantomaster says.