OnLive recent visited NY's Columbia University to demonstrate their "cloud gaming" technology. It's basically a two-way streaming system: live video gets pumped down over a broadband connection to the target device (which could be a TV-connected controller, Wintel or Macintosh PC, and now iPhones and iPods) at the same time that game-control commands get pumped back up to the server. This VERY lengthy video demo explains it all:
OnLive is convinced that this is the wave of future game marketing: between higher development costs, static retail pricing, a used-game secondary market, and piracy, it's become harder and harder for game developers to turn a profit. Streaming removes the packaging and distribution costs from the equation, and reduces the risk of illegal copies. Throw in multiple-platform hardware support, and OnLive just might be on to something.