Consider this carefully
I've done this, but wouldn't recommend it. The first time I tried to cover paneling, I scuffed it with rough sandpaper on a belt sander, then I coated the whole room with spackle and tried to sand it smooth (lots of sanding). No matter what I did, I couldn't get it to where the grooves wouldn't show. Finally I used a roll-on texture (thick paint with sand in it) in an attempt to cover it all. I never was happy with it. You could still see the grooves if you looked closely. I tried it in another room, filling the grooves again, but this time I shot really heavy texture on the walls with a texture gun and knocked it down. This looked better, but I still wasn't all that happy with it.
Since then I sold that house, and my new place had paneling throughout the entire house. From my previous experience I decided it was just as easy to remove all of the paneling and replace it with sheetrock. It wasn't any more work and the results are much better (and sheetrock is relatively cheap). It also gave me an opportunity to upgrade electrical, plumbing, and add more insulation.