Link wrapping is the practice of replacing an original URL with a tracking URL that "wraps" around it. When a user clicks the wrapped link, an intermediary server records the click, optionally injects parameters such as affiliate IDs, and then redirects the user to the original destination.
Email marketing is the most common context. Email service providers such as Mailchimp and SendGrid rewrite the links in an email body into tracking URLs once click tracking is switched on, and it is a setting that can be left off. When a recipient clicks, the tracking server logs the event and then forwards the user to the intended page.
A URL shortening service is, at its core, a form of link wrapping. It wraps a long URL inside a short one, recording access data at redirect time. In affiliate marketing, a product page URL is first tagged with an affiliate ID and then wrapped in a short URL, keeping the link tidy while preserving revenue tracking.
One important consideration is compatibility with email security filters. Because the wrapped URL hides the original domain, recipients or security software may flag it as suspicious. Since the domain doing the wrapping is what gets judged, an established domain is the usual choice. SPF, DKIM, and DMARC are worth configuring as well, but they attest to the sending domain rather than to the links in the body, so they sit on a separate axis from this.
From an SEO standpoint, whether the wrapping redirect uses 301 (permanent) or 302 (temporary) matters. Affiliate link wrapping tends to use 302 because the destination is expected to change later, while 301 is used for links meant to be treated as a permanent move.