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What is a Cover Version?
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A Cover Version is a version of the song other than the original recording. Cover Versions often pose a cheaper alternative to clearing the original version's Master Rights.
There are well-known cover versions, such as The Beatles' version of "Twist & Shout" which are probably more expensive than the original.
And than there are Cover Versions performed by unknown artists, which are produced for the sole purpose of being an alternative to the original recording for potential Licensors. These versions mimic the original performance, sound and arrangement.
These versions are also known as Sound-Alikes.

In simpler terms, let's say you're a computer company producing a TV advertisement, and have decided that the perfect song for your ad is "Changes" by David Bowie.
Using the original David Bowie version of the song obligates you to clear the Publishing Rights and the Master Rights.
Now, if you were to be satisfied with a well-produced Cover Version, you would only have to clear the Publishing Rights.
Though, neither is cheap in this case, clearing both would be a lot more expensive.

Legal Note:
In some countries, Sound-Alike versions are ruled as infringement of the song's copyright.
 
What is the difference between Publishing Rights and Master Rights?
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It all depends on what you are going to do with the song. Take a look:

Rights Type Explanation
Publishing Rights The owner of a song's Publishing owns the rights to the                                                      Composition. These rights need to be cleared in almost                                                       all instances.
Master Rights
(a.k.a. Recording Rights) The owner of a song's Master Rights owns the                                                                     song's sound recording. That means that if you                                                                     want to use the song as you know it by the                                                                             original artist, you must clear the Master Rights.                                                                   Clearing the Master Rights does not include Publishing                                                       Rights. Master Rights are useless to the requestor                                                               without the Publishing Rights.

 
When do I need to clear musical Rights?
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You must clear the rights to a song in order to make commercial use of the Composition or any part of the Composition. Don't let the word commercial fool you, it doesn't refer to a television commercial. Commercial use is practically any reproduction of the song, including the following:

Advertisements Stage Shows Kareoke
Motion Pictures Television Programs Parodies
Printed Media Music Samples Internet Use
Presentations Video Games Many more…
 
What is Clearance?
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Clearance, Music Clearance in our case, is asking permission to make use of a song from the person it belongs to.
 
What is a Composition ?
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A Composition includes the song's lyrics and music. Lyrics are the words to the song. Music is… well, music.

 

 
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