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Instead of installing a suite of software for each computer user, we only have to load one application. That application would allow workers to log into a Web-based service which hosts all the programs the user would need for his or her job. Remote machines owned by another company would run everything from mail to word processing to complex data analysis programs. This is what we call cloud computing.
Just read this answer from http://en.wikipedia.org/wiki/Cloud_computing
Cloud computing relies on sharing of resources to achieve coherence and economies of scale, similar to a utility (like the electricity grid) over a network.[4] At the foundation of cloud computing is the broader concept of converged infrastructure and shared services.
The cloud also focuses on maximizing the effectiveness of the shared resources. Cloud resources are usually not only shared by multiple users but are also dynamically reallocated per demand. This can work for allocating resources to users. For example, a cloud computer facility that serves European users during European business hours with a specific application (e.g., email) may reallocate the same resources to serve North American users during North America's business hours with a different application (e.g., a web server). This approach should maximize the use of computing power thus reducing environmental damage as well since less power, air conditioning, rackspace, etc. are required for a variety of functions. With cloud computing, multiple users can access a single server to retrieve and update their data without purchasing licenses for different applications.
Some important aspects of how cloud computing works from a business perspective.
cloud computing is working over following
1. internet
2. virtualized envirionment
3. web services
4. api
5. REST API architecture