I use cotton muslin, and either butyrate dope, or lacquer...





Little planes made of 1/16" balsa, are not going to be very happy with cotton muslin, (think bed sheet) shrunk up on em. My blown up planes are made of 1/4" pine plywood. It shrinks plenty, and it's HEAVY... When I first got started, I was asking the same fabric questions that you're asking. Howard told me to buy a book for fabric covering airplanes... I did:
http://www.amazon.com/gp/offer-listing/0891000771/ref=dp_olp_used?ie=UTF8&condition=usedDon't worry it's cheap.
The other material is Dacron Polyester. You glue it down with epoxy, and the shrink it with a heat gun, then dope it. Cotton is cheaper and easier.