EC2 is part of Amazon's cloud computing platform. It enables one to run a full stack (operating system, applications, scripts, etc) on one or more compute nodes. There are different types of compute nodes. Compute nodes are organized into CPU capacity (1-8 CPUs), RAM (up to 15GB), and local storage. The user can programatically start and stop compute node instances to deal w/ increasing or decreasing demand. So in the case where a single compute node may not be sufficient in satisfying demand it is the responsibility of the user to deploy application(s) that are cluster aware.
Data stored via local storage does not persist across restarts. For persistent storage one must use Elastic Block Storage (EBS) or Amazon's S3 storage service.