One of the first laws taught in this perek (chapter) deals with eating a meal on erev Pesah. The Mishnah rules that a person is not supposed to involve himself in a meal in the afternoon of erev Pesah. The Gemara points out that this rule is true for Shabbat and other holidays, as well. What if a person began the meal when he was permitted to do so, and it extended until it was time for Shabbat or the holiday to begin? Here we find two opinions in a baraita – according to Rabbi Yehuda you must end your meal in order to stop and welcome Shabbat; Rabbi Yosei rules that you can continue your meal.
Rav Yehuda quotes Shmuel as ruling that we follow neither Rabbi Yehuda nor Rabbi Yosei, rather a person in that situation should cover the bread with a cloth, and make Kiddush. The Rashbam is concerned that Shmuel, an amora, cannot disagree with both the tanna'im who have offered halakhic opinions on this matter. He suggests that Shmuel really does accept Rabbi Yosei's position, and is merely recommending a stringency – that one should not ignore the arrival of Shabbat and continue eating, rather he should acknowledge Shabbat by introducing Kiddush into the meal.
Most of the commentaries explain that covering the bread symbolically ends the Friday afternoon meal allowing a "new" meal to begin with the recitation of Kiddush. After Kiddush the meal – which has now become a Shabbat meal – is resumed.
Some of the Ge'onim explain the idea of covering the bread as being connected with the need to make Kiddush over a cup of wine. The Gemara in Berakhot teaches that the blessing over bread always precedes the blessing over wine. Covering the bread allows the blessing over the wine to be made without concern for the rules of precedence, since only the wine is readily available. According to this approach, covering the bread is appropriate not only for our unique case, but for all Shabbat meals. The other reason given for this custom is in commemoration of the Manna, that was covered both above and below by dew (see Shmot16).