Domain masking allows you to have your forwarded domain name appear in the address bar instead of your normal URL. A good example of what I would use domain masking for is if I had a keyword based domain name but was forwarding my business name. That way if I have my business name (as my domain name) on my business cards, if the customer types in the URL it will appear that the website's main domain name is the forwarded domain in the top of the address bar in stead of the keyword based domain name. My website URL is petstore.com if I type my company name (petoria.com) once I reach the website the address/URL will appear as petoria.com. Thus the process is call domain masking because it masks your URL to your visitors.
Say you own a website carbon.net and then you decide that you want to buy the .com version of your website. When you registered your domain name the .com version was not available, but later became available to buy. So you acquired the domain name and forwarded that domain to your website. At this point you can now make the address/URL look like carbon.com even thought they are infact on carbon.net
Say you have (carbon.com) and you forward it to (carbon.net) if they typed in (carbon.com) it would display (carbon.com). It will also simply display (carbon.com /otherpages.html) when you go to other pages within a forwarded domain. That page normally looks like this (carbon.net/otherpages.html). They are still the same pages.
As long as you use a 301 redirect you will be fine. Don't try to add to many 301 redirects at the same time, as this could have a negitive impact with the search engines. If you want to add a lot of domains to a single website add them over a period of time. This should keep you on track and out of trouble when it comes to search engines.