An electrical grid is a vast, interconnected network for delivering electricity from suppliers to consumers. It consists of the generating plants that produce electricity from combustible fuels and transmission lines that carry electricity from power plants to demand centers; and transformers that reduce voltage so distribution lines carry power for final delivery. 

But who bothers about these intricacies of power generation, definitely not the consumers. A consumer may make use of electricity without even knowing the physical location of the transformer or the fact that the generating plant is located near a source of power.

If we apply this concept of electricity grid to the computer system, we will begin to understand the concept of cloud computing. Cloud computing provides computation, software, data access and storage services that do not require end-user knowledge of the physical location and configuration of the system that delivers the services. This may take the form of web-based tools or applications that users can access and use through a web browser as if the programs were installed locally on their own computers

Cloud computing encompasses an increase in capacity without the investment of new infrastructure, or licensing of new software. Executives of large corporation who may need to install hardware and software for new employees will now have an alternative in cloud computing. Instead of installing a suite of software for each computer, employers would 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 e-mail to word processing to complex data analysis programs. 

In a cloud computing system, there  is a significant workload shift. Local computers no longer have to do all the heavy lifting when it comes to running applications. The network of computers that make up the cloud handles them instead. Hardware and software demands on the user‘s side decrease. The only thing the user‘s computer needs to be able to run is the cloud computing system‘s interface software, which can be as simple as a Web browser, and the cloud‘s network takes care of the rest.

A cloud service has three distinct characteristics that differentiate it from traditional hosting. It is sold on demand, typically by the minute or the hour; it is elastic -- a user can have as much or as little of a service as they want at any given time; and the service is fully managed by the provider (the consumer needs nothing but a personal computer and Internet access). Significant innovations in virtualization and distributed computing, as well as improved access to high-speed Internet and a weak economy, have accelerated interest in cloud computing.