Wood paneling has the right texture to lay wallpaper on, if that's something you decide you want to do instead of paint. You have to prepare the surface for the wallpaper ahead of time, especially for the glue that goes on the back on the wallpaper when you lay it. Make sure the walls are free from oils and residues and clean the paneling with TSP.
Now there are a few ways that you can attack the next step. One is to use wood filler to fill all the grooves. The next is to use paintable caulk. Fill the grooves smoothing with a putty knife as you go. It requires no additional sanding and is one of the cheaper options. Another is to use wallpaper liner. It’s like putting up wallpaper, only horizontally. Sand any irregularities smooth before wallpapering.
Once you complete one of these steps to prepare the wall, then you start putting up the wallpaper. Make sure to lay it slowly as not to have bubbles in the wallpaper.