iOS 5 Music App streaming a song. iCloud button allows you to download locally.
iTunes Match stores your complete music library in iCloud, allowing you to enjoy your collection anywhere, anytime, on any iPhone, iPad, iPod touch, or computer.
iTunes Match on an iOS Device
Insanely Great Mac provides this nice walkthrough video which shows you how the service works. It also shows that this is both a streaming and downloading service.
iTunes Match is expected to launch alongside iOS 5 this fall.
Now video showing how it works on an iOS device: