The differential cover gasket seals the back of the axle housing. This plate is removed to drain the gear oil. The gasket prevents oil from seeping out under high pressure. Modern gaskets often use a steel core coated in rubber for durability.
Clean the mating surfaces thoroughly before installing the cover. Scraping off old RTV is critical to prevent leaks. Overtightening the bolts will crush rubber gaskets, making them split and leak oil.