A clipping path in an image editing program is functionally equivalent to a clipping mask in an illustration program. Usually it is used to "knock out" the background. As with so many things in graphic design there several ways to achieve good quality image cutouts in Photoshop. The best way to describe an image cutout is clipping path.
Clipping paths are typically used to hide or remove background from image or may be used to shape (crop) an image into different shapes. Clipping paths can be created in graphics programs then exported with an image as an embedded path or alpha channel or they can be drawn directly in some page layout applications.
The Pen Tool is probably the most widely feared of the selection tools, it also happens to be one of our favorite. To be accurate, the tool is specifically for creating paths, which can then easily be converted to selections.
Pen Tool paths are vector and are therefore incredibly versatile, allowing for endless editing and scaling at any time. Also keep in mind that your eye can sense an edge much better than software so when there's a lack of clear contrast, the Pen Tool will prove superior. Finally, paths can be saved with even flat files and therefore represent the best way to embed a selection into a file that doesn't retain layers.
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