Cloak of Shadows both raises the defense of the Assassin and decreases the defense of enemies in the radius. Party members and minions are unaffected by it. The skill can be quite useful in both giving the Assassin an advantage over her enemies; they have a harder time hitting her, and she has an easier time hitting them.
It is also particularly useful vs ranged PvM attackers as it temporarily causes all ranged attackers (that are not boss mobs) to cease attacking. Cloak of Shadows is also useful versus mobs that perform special actions; it can prevent mobs that ressurect or spawn other mobs from doing so.
Versus some opponents (other assassins or players with low attack rating or high defense), using Cloak of Shadows also may give an edge in PvP.