Before going into more details, lets first understand what is cloud computing.
According to this article on Wikipedia, Cloud computing is a term used to refer to a model of network computing where a program or application runs on a connected server or servers rather than on a local computing device such as a PC. This hosted application can be accessed by any internet enabled device such as PC, tablet or a smartphone.
For example, cloud accounting software – ProfitBooks is hosted on the centralized servers. Users can just open their web browsers and start using the application without installing anything on their PCs.