There may very well be licensing involved in this ... so they can indeed be sold out in terms of numbers of virtual connections to the back end running MS software.
Definitely licensing. At a wild stab, from my recent forays into the wild and wonderful (!) world of Microsoft volume licensing, I would guess they are using something like Terminal Server Remote Access licensing. These are licences to allow remote users to access Office on a central server.
CloudOn are probably renting a large array of virtualised servers running Terminal Server. Each Terminal Server can take up to maybe 200 remote Office users (as this is light use, documents only, no Outlook). Licenses are maybe $50 each (wild guess) but this is a one-off cost.
2,000 licenses would be $100,000 in VC funding, plus the volume costs of Office and Terminal Server and the monthly rental for 10 virtual servers / bandwidth.
With 2000 licences, you could support up to maybe 20,000 users, as most will only use this app for maybe 30 minutes at a time, and many will only use it once a week.
If they can move to a low per-hour charge,this business plan has legs, but it risks being wiped out when / if Microsoft release a decent Office 365 app for iphone /ipad.
Still, a limited time-based rental of Office on ipad/ iphone would suit many people better than committing to a year's worth of paying for Office365 plus the setup involved.