Echelon, you're at the 100 ft level and the difference between Virtualization and Cloud Computing is at the 10,000 ft level :)
I'll assume we're talking industry terms and not some Xen marketing speak. Your example is just server virtualization, nothing more. Nothing wrong with that, but virtualization is just one component of the cloud computing model. The cloud concept is not a feature, or specific thing, but a framework for all the things you build and automate around your virtualization.
Microsoft's Young Chou does a great talk on what it takes to "build a Cloud". You can find a 6-part dissection on his blog, as well as some high-level theory on what is cloud.
Specifically, once you have a virtualization infrastructure (multiple hosts for VM's, scalable storage and networking, etc.) Chou says you will need:
- Self-Service (Limited number of clicks to deploy a new system, high level of OS and server app deployment automation)
- Resource Pooling (Standardization plus optimization plus systems management)
- Elasticity (Grow and shrink number of virtual machines based on demand)