The best place to get info on this is Rock Paper Shotgun, but OnLive is a new webservice where you play games on a server, but not just casual games, the latest FPS and racing games. It is supposedly a Remote Process Service Provider. So the software runs on a remote server, the game is rendered on the remote server, your PC just displays a video of what is running on the server and collects game input signals to send to the server.
The thing that makes me sceptical about this is that I was expecting to see this in the next few years, but not now. Kind of like Phantom which was a download game distribution platform, at the time very cutting edge, was a pump & dump scam to steal money from investors, but retrospectively could have done very well, as online distribution is very much the present and future of the industry. So I just hope that OnLive is for real, but the current day technical challenges seem to me, to be too great for them to do this right now.