Comparing CRM On-Premises to CRM Online
Dynamics CRM is at its heart an ASP.net web application built and deployed on Microsoft’s Internet Information Services (IIS) and SQL Server.
Its available for you to run in your own datacenter (CRM On-Premises) or to consume out of Microsoft's public cloud (CRM Online / multi-tenancy model). The two are pretty identical in features, but some variations can be considered.
See also