Read about cloud computing here:
http://en.wikipedia.org/wiki/Cloud_computing

Also read this, very well written article:
http://www.janakiramm.net/blog/defining-the-cloud

Cloud computing is a vague term that can cover any number of technologies. Google's AppEngine is a service that exposes an API that allows you to run your code across their abstracted infrastructure. Some "cloud" services are what we called ASPs in the 90's and essentially Software-as-a-server providers. Other's like Amazon's EC2 provide access to ditributed Virtual Machine architecture. Other cloud services include distributed storage, and even technically Gmail is a cloud service. Generally, you can consider something to be a cloud computing service if it abstracts hardware or software to a level where you no longer need to make use of local resources to operate it.

Some open source projects to look at would be:
EyeOS: http://eyeos.org

Eucalyptus: http://www.eucalyptus.com/ (these guys a do a lot of work w/ Canonical / Ubuntu) This si EC2 compatible.


GoodOS and Google's ChromeOS are other examples.

Cloud computing is simply analogous to processing power as RAID is to individual disk devices. An open software cloud computing platform can now be setup on your own using the Ubuntu UEC (Ubuntu Enterprise Cloud) now a part of the Ubuntu Server distribution.

Cloud computing will become the normal manner of the future commercial IT department's need for expanding their processing power without the need to capitalize their own infrequently used solutions.

As the security issues that now confront "pay-as-you-go" cloud implementations (see early answer for a list) are solved, more organizational IT departments will see cloud computing as a way to provide performance for their users without having to build it on their own. This is exactly what happened when FedEx first came on the scene. Everyone thought they would never use such a non-traditional delivery service, and look at it now.

PNanouk