How Cloud Computing Works?

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.

1. Rapid provisioning: Instead of waiting for several weeks/days to procure hardware cloud computing allows to procure in minutes. Some cloud providers provide an API using which the computing resources can be launched/destroyed automatically using programs without needing manual intervention. This allows organizations to try new things quickly instead of waiting for days/weeks as in the case of traditional setup.
2. Auto scaling: With cloud one can add/remove resources based on need. e.g. during day time a system may be using more and powerful servers to support the load and at night you can use fewer and less powerful servers.  This is not possible with traditional IT infrastructure.
3. Pay per use: With cloud you pay for only the resources you use and for the amount of time you use them.
4. Economy of scale: As cloud usage increases the cloud providers cost of service reduces and many of them are able/willing to transfer the cost benifits to their customer(You)

cloud computing is working over following

1. internet

2. virtualized envirionment

3. web services

4. api

5. REST API architecture