You can switch to other apps while using CloudOn, without fear of losing your work; all changes are saved instantly to your Dropbox or Box folder. There's no Windows desktop to get in the way -- you work instead in full-screen versions of Word, Excel, and PowerPoint, as appropriate for the files you've opened or created. You run the actual Windows versions of these apps, so you have all their native capabilities, and you can access supporting files, such as images, from Dropbox or Box's folder hierarchy using the standard Windows file dialog boxes.
CloudOn also provides the ability to open PDF files and fill out forms via Adobe's Reader app, as well as preview a variety of image formats. There's nothing wrong with that, but the iPad can preview all such files natively, and Adobe's free Reader app for the iPad handles the rest. Of course, having these capabilities within CloudOn in addition to on the iPad itself is nice -- but not a make-or-break feature.
All in all, you get "real" Office apps on your iPad, working as you'd expect -- mostly.
There are a few flaws. One is that you cannot move documents within your folder hierarchy from CloudOn, although you can delete and rename files from its file manager. To move files, you'll need to use the Dropbox or Box app on your iPad. The other flaw is the lack of UI sizing controls. The Office apps' menu items and ribbon bar icons are a bit too small to be tapped reliably on the iPad's screen, and there's no way to change their size in CloudOn. Windows and Office are designed for large monitors and mice, neither found on an iPad.
I'm also concerned that CloudOn is only available as a free service. No company can survive by giving its wares away, so I wonder what price I'll ultimately have to pay to use CloudOn. Businesses shouldn't grow dependent on CloudOn until its real price is clear.
But CloudOn's decent iOS integration shows that desktop virtualization doesn't have to be a "when nothing else works" option. Most iPad road warriors should install CloudOn. Even if you use iWork or Quickoffice, there are some things these apps cannot do that Office can, and the ability to get the native Office apps lets you have your iOS cake and Microsoft Office too.