Software as a Service 

Instead of installing the software application (Word, Act, Sage etc) onto the operating system (Windows XP, SuSE, RedHat, OS Mac), the application runs via the clients web browser (Internet Explorer, Firefox). The user is then charged for the time they use the application rather than paying a one off fee.

Sometimes referred as...

Web Applications, Rental Software, 

Examples

Salesforce, Google Apps etc 

More information at Wikipedia 

http://en.wikipedia.org/wiki/Software_as_a_Service