The what is a "cover" issue seems to touch on several different areas, much to do with where/how you got the song and how you want it to be understood. I have little patience with those in the "Folk" world who seem to think if it wasn't written by someone they could identify, it' s garbage (when often, the reverse is true). I admire Deb Cowan's referring to herself as a"song interpreter" while I am annoyed that the current music climate requires her to make that as a disclaimer at times.
There was a recent thread that talked about the distinctions between "I learned this from so&so" meaning actual face to face transmission, and "I learned this from the singing of someotherguy" meaning you might have heard them sing it a time or two, but really learned it from their album. Either of those two ways, most likely commerce isn't the primary motivator. "cover" strikes me as being tied, monetarily and stylistically to the original. (If it's based on something itself a cover, that's just ignorance) What I hear is "I'm going to play a BobDylan song" from my generation, and "BobDylan cover" from younger folks, who are more attuned to the commerce of music.
In one way, I see acknowledging a "cover" as a rock& pop version of how I tell where my songs come from, trad or written "in the tradition." Folks at open mics have commented how much they like what I can tell them about an old song and the folks who sang it. I say we stick to our guns and declare a cover of a pop song isn't folk, no matter how acoustic and buttered in banjos and fiddles it is. Much as I adore Richard Thompson, and his treatment of trad material, I am just fine with saying that this bluegrass band or this reggae band did a Cover of Vincent Black Lightening, and hope he reaps beaucoup royalties, so he has the time to sing trad.