Here's why:
* It modifies a noun: It describes or gives more information about a noun (presumably in the main clause, like "the scarves *that covered their hair*").
* It begins with a relative pronoun: "That" is the relative pronoun that introduces the clause. Other common relative pronouns include "who," "whom," "which," and "whose."
* It functions as an adjective: Like an adjective, it adds detail to the noun it modifies.
For example, in the sentence "The scarves that covered their hair were brightly colored," the clause "that covered their hair" modifies the noun "scarves."