The Altar cloth is purely and simply a cloth that is used to dress the Altar. It can be specially bought and is available in many different sizes, colors, fabrics, and with many different designs.
You can of course make your own if you have any sewing skills. Fabric stores carry a vast range of materials and textures. If you're really skilled you can embroider your own designs on it.
Altar cloths are usually inexpensive though. The benefit of having an altar cloth is that your altar is protected from dripping wax and water or other stains.
The altar cloth can also add magickal properties to your altar by virtue of symbols on it and the color it's made from..