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Facebook really does mean 'timeline', when it was announced it at the Facebook f8 conference today. You can go all the way back to birth, and add baby photos of when you were a child. You can also add events, life changing or otherwise, such as moving home or going to college.
In this case, you can retrospectively add content to your profile -- even if it was before you joined the social network. Facebook gives you a variety of options to add, or 'other' if it does not fit the category. As you can see here, you can even add very personal stuff such as "having surgery" or "broke a bone" to your profile, to allow others to see as and when things happened during your life.
Featuring content on your timeline allows you to proactively bookmark something as important to you. You can see that photos are in high-resolution, and everything is documented from the middle timeline vertical bar. You can also go through and edit visibility settings, to allow or disallow more or less people to see the content you publish, and also the added bonus of being able to delete content from your timeline. It will be as though it never existed.
Covers are images that you can upload, or have already been uploaded to your profile. They act as 'main images' to your profile page, for which others can see. You can reposition the image as you wish, and it can be anything you like.