what exactly does general liability insurance cover for a small business?

Depending on the type of business, one of the best policies to look at would be a Commercial Package Policy. This type of policy will provide you with Commercial General Liability coverage which (with a few exceptions) would include coverage for injuries or property damage that you or your employees cause as a result of your negligence to a third party. The policy also includes coverage for your Business Personal Property including inventory and equipment--this coverage can be tailored to cover theft, fire, etc. You can also include coverage for Loss of Income, i.e. if you have a fire on your premises and your business has to shut down as a result the policy will replace the income you lose while the repairs are being done or you secure another location until you are back up and running. Depending on your operations, you might also need a Commercial Automobile Policy, Workers Compensation, Employment Practice Liability Insurance (EPLI), etc.

The best advice I can give you is to find an independent agent in your community who will sit down with you and help you to assess your business exposures and develop a plan to provide coverage for those exposures where possible at a rate that is within your budget.