Exactly! this is how it's done, you need to figure out a method so that expansion costs you the least possible, so that the return on investment can make sense.
The selling point is that they can provide you the customer a service that you can do yourself, but once you look at the cost for 1, 2, even 10 servers, your product/service that you wish to provide doesn't really give you a great return because of the expense.
So long as cloud providers can provide you the same service for 1 - 100/0/0 servers cheaper than you can yourself, they stay in business. Brilliant hey?
In fact, some business models can only really work if they are massive. (can you imagine T-Mobile with just 50,000 customers?)
We just have to wait for economies of scale to tip in our favour, but even when they do, they also tip in cloud providers favour too - So I reckon they are here to stay.
Oh, and to answer your question
Amazon generally provides unlimited
space for their S3 service. If we want
to provide unlimited space to our
website what are the possible ways?
The answer would be to use Amazons services - Oh, and these days I like to think that unlimited means "More than you can use" not, "There will always be more for me" If that makes sense.