Why cuts into vinyl covers?

Growing up I lived two blocks for a RCA record plant in NJ workers on the loading dock would give albums and singles and told us if it had a hole in the cover it was returned from the stores and if it had a cut into the vinyl it was defective I have some promo albums and they say on them for promotional use only and I got those from a friend who work in NYC radio
Don't know how many of those records we sailed on to the roof of the plant from the hill behind it  

When I worked at Tower Records in the early 1980's, I just loved the LPs  we affectionately called Cut Outs.  Mostly they were promotional copies sent to the record stores in the hope they'd be played on the store's record player and perhaps garner a couple of sales.  Cut outs were almost always among the first copies generated at the pressing plant so they sounded wonderfully fresh and quiet.  We almost never saw defective ones.  When the store manager got to know your tastes, he/she'd sneak 'em into your in-box to take home.  I still own more of my share of 'em. And oh yeah, several of the other record stores I frequented had cut-out bins where stuff was heavily discounted.  I'd see one that caught my eye and just take a chance.  After all, they never cost very much.

There used to be this thing called the budget bin in record stores. The records in there were much cheaper, just a dollar or few, and often the covers were notched or a hole punched to designate them as budget bin and keep the value down permanently.

Interesting read but many different takes. More confused  than ever.

I can imagine your getting confused here as there is some misinformation. 
A cut out is not a store play copy but overstock that is sold in bulk at a low price to resell to stores. The mob pretty much controlled this business to the extent I worked in a store in NYC (owner by some guys that worked at Strawberry’s, Morris Levy's Boston chain) that had set up an operation to press cut outs. In other words, bootleg the remaindered records as once it was a cut out no one noticed if someone was making more of them. Since some of them sold pretty well it was like printing money. Cut outs are cut so they can’t be returned to the distributor.

Records that also have a cut, or a hole punched through the bar code are promos or store play copies. These are indeed the first albums off the stampers and can sound better then those from later in the run. 
In the old days stampers would press 15,000 copies before a new set was made from a mother. These days they rarely press more then 3000 before replacement. In the old days also way overstocked records would be ‘reground’ that’s is melted back into being vinyl ‘pucks’ to make new records from. When they did this the labels were not removed. After 30 years or so of regrounding vinyl things were getting pretty noisy.