Google Docs is cloud document processing. You write, save and share your documents online (or more commonly known as in the cloud). The original content is not saved directly on your computer, though you can download a copy. Just imagine an actual cloud, and everything is stored there - Way above you in a secure place; somewhere people can't touch but you.
You probably haven't realized it but pretty much everything you do is in the Cloud. From Facebook, to emails (yes, even if you use a desktop email program like Outlook - Your emails are stored on foreign servers ... The Cloud). Its all handled on servers run by big companies with secure servers.
How secure is the cloud? Very secure. Your are rest assured by the big companies like Yahoo, Goodle, Microsoft, Zoho and .etc. Corporate institutions have teams of hundreds (if not thoudands) working around the clock to ensure your content and personal details are safe. This saying, does not mean that it can't be penetrated. It has happened to Sony recently but how often does this happen?
Thus far, cloud apps (ie. web apps or SaaS - Software as a Service) aren't really as super-functional as their desktop counterparts. Web Apps are generally to do the simple stuff and nothing too complex. Reasons are that not all people do not currently have the necessary bandwidth and speed to handle mass data transfer (not enough of a market).
They generally do the simple, yet functional, things that benefit those in need. From displaying the latest news, collaborating people, social networking, photo editing, slideshow creation, to website making.
As they say, Cloud Computing is the future and there's no doubt about that. Google has been developing the Chrome OS - The future of Operating Systems explicitly designed for the web, for Cloud Computing.