A cloaker can try to wrap a Medium or smaller creature in its body as a standard action. The cloaker attempts a grapple that does not provoke an attack of opportunity. If it wins the grapple check, it establishes a hold and bites the engulfed victim with a +4 bonus on its attack roll. It can still use its whiplike tail to strike at other targets.
Attacks that hit an engulfing cloaker deal half their damage to the monster and half to the trapped victim.
The Tactics section says Engulf is usually used versus a lone opponent, but it seems like the main danger of it comes only when you have other party members hitting the cloaker. The bite deals 1d4+2 damage, and is far from an auto-hit. (I believe the "+4 bonus on its attack roll" phrasing means "it attacks using its bite as its primary weapon at +8, taking the -4 penalty for attacking with a natural weapon in grapple, for a total to-hit of +4".)
This is going to take forever to kill anyone unless the cloaker is dealing some kind of unarmed strike damage with its grapple checks as well (and if it did, they could have given it Constrict). Is the idea that you engulf and then moan instead of using the bite attack? Using unnerve or stupor to make the target helpless will let you kill it a whole lot faster than 1d4+2 damage a round.