If you have one of the original Smart Covers (i.e., before the refresh in October 2011), then it may not work because of a polarity issue. See http://markshangout.com/blog/2012/3/17/ipad-3-smart-cover-sleepwake-feature-not- working.html for an explanation. I had the exact same thing. The smart cover worked fine for an iPad 2, but not on an iPad 3. Originally there was no Cover Lock/Unlock option under Settings > General, but I found that when you move the right side of the cover up and down the right side of the iPad, it will show up. I also noticed that when positioned normally on the new iPad, the smart cover won't lock/unlock the screen, even with the option turned on. It only worked when I misaligned the cover and iPad by about two inches, where the cover was sticking out at the top of the iPad.
If you bought the smart cover at an Apple store, you can go there and exchange it for the most recent version, which does work. (I wasn't so lucky as I bought my smart cover on Craig's List, so I had to buy a brand-new one at the Apple store. Bummer.)