Excellent question, man.
Bottom line, a "cloud" in this context is just a bunch of computers located in different datacenter around the world with VM's (virtual machines) running code which is then utilized by a remote client somewhere. It can be used to process all kinds of different tasks ranging from web hosting to Netflix like entertainment streaming, to full game rendering with the local client (PC, tablet, phone) simply streaming video and sending control commands to the service (OnLive, Gaikai/PlayStation Now/MS's test run with Halo 4 via Nokia devices).
Sony's vision for their "cloud":
- Use it for PS services (like matchmaking, data hosting, digital distribution store, etc.)
- Use it for full game rendering/streaming. The 'client' simply sends commands to the cloud VM, cloud VM manipulates the game per the user commands, and the results are compressed and streamed in real-time to the user.
Microsoft's vision for the cloud:
- Use it for Xbox LIVE services (matchmaking, user data, title managed storage, profile syncing/hosting, etc.)
- Use it to offload tasks f rom being run locally (think about Turn 10's utilization with Drivatar. They track how you play, the 'cloud' service takes that data, and then builds a 'virtual' you with your racing behaviors... and the service then hosts MP sessions when users race, so when you race against an opponent in Forza, you're actually connecting to an MP session with the AI all managed by the drivatar system).
- Maybe some time in the future, use it for full game rendering/streaming (Like OnLive, PlayStation Now, etc.)
MS has released comments suggesting the streaming tech isn't ready for customer consumption, and I tend to agree. High-frame-rate/twitch gameplay is massively impacted by the inherent lag/latency and compression artifacting. When Sony demoed PlayStation Now, they did so on a local connection with the host hardware being mere feet away from the connected clients - and even with that kind of an EXTREMELY ideal connection - there was noticeable lag... put it in the real world over the internet, and those who aren't next door to the datacenter with top tier ISP connections probably aren't going to be having a very good experience.
In any case, there's also a huge disparity between total 'cloud investment' between the two, from what I can tell. Microsoft's investment has been incredibly massive... with Azure datacenters all around the world, set up with world-class, award winning configurations. I don't know how many data centers Sony has set up to support PlayStation Now, but I'm quite sure it's not on the same level as Microsoft's Azure datacenter distribution...
So when people say, "the cloud is just a gimmick", they're referring to one of two things - First: a perceived promise that MS will deliver 'better graphics' via cloud usage. Second, the actual promise that games can be vastly improved with cloud compute power. For that first issue - MS has never promised better graphics with the cloud... they've simply stated that there's untapped potential there... and they're right. Nvidia demoed some interesting lighting enhancements which were rendered in the cloud... but in any case - that's never been the promise. The promise is that with cloud compute, you can have 'living worlds' which exist outside of yoru local client. Every game *can* have dedicated servers (if the dev knows how to build the feature), and much more. For the second issue - some people just don't understand that there are real benefits to offloading compute load to the cloud, but it's new and not everyone knows what to do with it. I think Turn 10 did a great job using it... their Drivatar system is literally impossible for local game consoles to perform or mimic...
So it's not a gimmick, but it's also not some revolutionary huge differentiator... *yet*. :-)
So they're different approaches, and they're solving different problems... but MS has done everything Sony's trying to do... the reverse is not true. So, if Sony's successful with PlayStation Now - MS could quite easily counter... if MS is successful with cloud compute, Sony cannot counter. For example, Sony doesn't have the resources to build out the kinds of data centers MS already has - so they could never offer free 'dedicated servers' to devs like MS does...
Wow... that was quite a book. Hope that helps.