Okay, so sometimes things are announced that are simply too good to be true, like the Phantom, or models dating geeks. OnLive is one of those things. The concept is that you connect to the OnLive service via any web capable PC with broadband and you can play ANY modern game with a solid framerate. It is all dependent on your Internet connection.
It sounds to me like you are controlling the game remotely and it is working almost like a thinclient application, all you are seeing on the screen is literally video of the game you are playing...I think.
It sounds amazing, but can it really work? I hope so because if the price is right (say a 20 dollar subscription) I would buy it in a heartbeat. There is also going to be a micro console that you can connect directly to you HDTV so you can play the games on your big screen. If I can play Crysis or StarCraft 2 or other leading PC games on my TV or crappy laptop I will be simply amazed.