Although IMHO Cloud Computing is a little over hyped but it is working for a lot of people. There was a time when only big businesses owned the best of the computers but with hardware costs coming down everybody started having there own machines.
Impact of Low Cost Hardware on Business
In a typical business scenario whenever you need more computing you would probably ask an IT guy to install more systems in to the server room. There are chances that your resources are not utilized properly.
Only at some peak hours your requirement for resources will spike and else it will not be wrong to say that your resources will be wasted.
What is Cloud Computing?
Let us understand cloud computing with help of an analogy. You visit a restaurant and order a buffet meal. If you do not have a good appetite you are wasting unnecessary money for food which you will never eat. In this case it is sensible to order an a la cartè meal.
Similarly, if your appetite for resources is also low instead of buying entire systems it is wise to just pay for the amount of resources you utilize.
Cloud computing is taking services of specialized firms for your computing needs where you just pay for what you consume.
These specialized companies are selling computing resources like CPU cycles, disk space, etc. instead of selling physical hardware. As a user you do not buy the server, instead you pay for what you use.
It is often a good choice to cut down costs by not overpaying for acquiring expensive hardware as well as ongoing costs of maintaining it.
The most common example of a cloud is Amazon’s S3. Amazon sells online storage space. Here you do not pay fixed charges for amount of space or transfer per month. The costs are variable depending on the space you use and data transferred off the server.
In simple words, these resources are metered. For example 3 cents are charged for a query to a web service or every search in a database.
Here is an interesting Infographic that will help you understand the concept better.