I read an article in Game Informer about Playstation Now. (The article is not online, it's in the magazine. Issue 258 page 15.)
On a very basic level, games are played on a remote server and the video signal is sent to your console. At the same time, your controller inputs are beamed back to the source.
This is possible for games now, so it's only a matter of time before all programs are like this. We will reach a point where we won't own anything, but all programs, music, movies, etc., will stream from central servers. No piracy because no one will download anything. Maybe we'll reach the point where hard drives will not exist on home computers. It will be framed as "convenience," but do not be fooled. Once the things we buy--once our information!--is no longer in our hands, our lives will not be in our hands.
Based on some of the reviews out there (1 | 2) people are looking forward to this. Once the problems with controller lag and pricing are resolved, it could be an industry changer.