General Manager of Microsoft Game Studios Matt Booty sheds some light on the 300,000-server cloud architecture. Part of the server setup will be used to compute scenes in games. Booty explains that Microsoft is targeting areas that aren't sensitive to latency, a common complaint around cloud-powered games. "There are some things in a video game world, though, that don't necessarily need to be updated every frame or don't change that much in reaction to what's going on."
Part of the cloud processing could be focused on elements such as lighting in games. Booty describes a forest scene where light shines through trees, or a battlefield with fog. Both elements don't need to be updated in real time and can be processed in the background, while the controller remains responsive to the action parts of the game. "Those are perfect candidates for the console to offload that to the cloud—the cloud can do the heavy lifting, because you’ve got the ability to throw multiple devices at the problem in the cloud."
Imagine when after 5 years PC gamers will be using 16-core CPU and 16-GB RAM for playing games, Xbox One will still be able to render PC-equivalent graphics because it will process the graphics on it's servers instead in your console.