Old sheet covering small area (7)
I believe the answer is:
expanse
'area' is the definition.
(an expanse of land)
'old sheet covering small' is the wordplay.
'old' becomes 'ex' (prefix meaning former or onetime).
'sheet' becomes 'pane' (pane is a kind of sheet).
'covering' indicates putting letters inside.
'small' becomes 's' (abbreviation - e.g. clothes size).
'pane' going around 's' is 'panse'.
'ex'+'panse'='EXPANSE'
(Other definitions for expanse that I've seen before include "Range - spread" , "Wide area of open land or space" , "Swathe" , "Stretch - extent" , "reach" .)