We report systematic studies of the microstructural changes of uncoated and AlF3-coated Li-rich Mn-rich (LMR) cathode materials (Li1.2Ni0.15Co0.10Mn0.55O2) before and after cycling using a combination of aberration-corrected scanning/transmission electron microscopy (S/TEM) and electron energy loss spectroscopy (EELS). TEM coupled with EELS provides detailed information about the crystallographic and electronic structure changes that occur after cycling, thus revealing the fundamental improvement mechanism of surface coating. The results demonstrate that the surface coating reduces oxidation of the electrolyte at high voltage, suppressing the accumulation of a thick solid electrolyte interface (SEI) layer on electrode particle surface. Surface coating significantly enhances the stability of the surface structure and protects the electrode from severe etching/corrosion by the acidic species in the electrolyte, reducing the formation of etched surfaces and corrosion pits. Moreover, surface coating alleviates the undesirable voltage fade by mitigating layered to spinel-like phase transformation in the bulk region of the material. These fundamental findings may also be widely applied to explain the functioning mechanisms of other surface coatings used in a broad range of electrode materials.