The Cloud is a term that borrows from telephony. Up to the 1990s, data circuits (including those that carried Internet traffic) were hard-wired between destinations. Subsequently, long-haul telephone companies began offering Virtual Private Network (VPN) service for data communications. Telephone companies were able to offer VPN based services with the same guaranteed bandwidth as fixed circuits at a lower cost because they could switch traffic to balance utilization as they saw fit, thus utilizing their overall network bandwidth more effectively. As a result of this arrangement, it was impossible to determine in advance precisely paths traffic would be routed over. The term "telecom cloud" was used to describe this type of networking, and cloud computing is conceptually somewhat similar.

http://en.wikipedia.org/wiki/Cloud_computing#History