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It is one of the most powerful items in the game. It allows you to charm with a very high success rate--almost always succeeds (may take a several tries with creatures that have good saving throws vs. breath weapons, though). And once charmed the target is under your spell forever (unless you turn him with a hostile act of course). As has been mentioned, it raises charisma by 2--and btw, if you concentrate on doing rep increasing quests early on, by the time you get your rep up to 20 and have a character with 20 cha (18 + 2 from the cloak) doing the buying and selling, you will become very wealthy before you know it.
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