A covered call sells a call against 100 owned shares, collecting premium in exchange for capping upside at the strike. If the stock finishes above the strike the shares are called away at that price; below it, the premium is kept and the shares remain.
The discipline that keeps covered calls honest is the cost-basis floor: no call strikes below what the shares cost, because assignment below basis converts a paper drawdown into a realized loss for a small certain premium. Within the wheel, covered calls are the third state, harvesting premium from assigned shares until they are called away and the cycle restarts.