josico is correct. generally, they provide reliability. by hosting the content on S3 and using EC2 for the computing (data retrieval, etc.), you are basically covered and guaranteed 99.99% uptime. I mean real 99.99%, not what you actually experience at hosting companies who state the same.
EC2 can run linux instances and be used for the data retrieval, but I can only see really being used by sites that either want to pay more for reliability, or sites that have millions of hits a day from all over the world.
But for example, if you got a site that has a ton of HD videos, and download speeds are annoying your clients, then using S3 could be a solution.
Anyways, I don't think Amazon is gonna replace regular hosting just yet, but it's headed that way. Please note, that Google has launched something similar, but nothing like Amazon yet..... 'yet' is the keyword.
(we know Google will eventually make something even better).