MS shrunk 25GB storage down to 7GB so that they could then increase it again to 25GB for those who already had it.
Information is simply information, and there are several great reasons to use these cloud storage services:
1) Many of us have our own personal file servers, but sometimes it is simply easier/faster to put something up on a real server with real bandwidth. For example I put up common drivers and software installs that I use all the time for my test boxes so that I have everything in a single place instead of hunting for websites or CDs. Just install an OS and a network driver, and I can get the rest easily. Obviously a USB drive should be easier, but I more often dont know where it is than do.
2) For others it is easier to share pictures and videos with family via a common internet service. Have you tried getting an elderly woman to log into an FTP server to download video of their great grandson? It cannot be done! It is much easier to set them up on Skydrive, give them permissions to the file, and give them a phone call (they won't use eMail because it got their husband laid off from the postal service) to let them know that there is a new video for them.
3) Don't post stupid/incriminating things online. Period. On your own servier, or anyone else's. Personally I don't care if someone sees a pic of how my flowers turned out this last year, or if you happen to like the wall color I picked out for a room, or if you look at a picture of my family. If someone wanted to do me harm, they can quite simply do me harm, and I am not giving them any more of an invitation to do so by putting something up on the web (securely or not). To think otherwise is shortsighted and dumb. Yes, there would be dumb things to put on the internet... like a picture of my car with it's license plate, or a picture of how awesome an HDTV looks next to an open window on the first floor with a note saying "I purchased this today!" with a time stamp (seriously though... I don't own an HDTV, just a progressive SDTV so move along to one of my neighbors who watch their 65+ inch TVs facing the street so that you can watch whatever show they are watching from your house down the block).
4) Cloud storage is also a great backup as I trust MS to have better backups than my RAID 1 or 5, and it is easier to restore that information than digging out the yearly DVD backups.
5) On top of that I trust MS and other servers to be more secure than what I am capable of doing with my own personal home server. I may have a fair level of intelligence and I have done a bit of homework, but I am also no security expert and am fine with being 'reasonably secure' rather than going nuts and making fort Knox in my basement. Because there are a lot of smarter people than myself. So things I want to see that I do not want other people to see goes on CD/DVD and is not kept on my computer at all.
What makes these cloud services is more in how you interact with the data rather than the fact that it is a file on a server. With most of these you simply have a folder that is synced with the cloud storage. A few minutes later it is available on all of your approved/shared devices either locally, or via the server. But the fact that you interact with your device instead of uploading or downloading something via FTP (which can be a pain), and have more control over the files is what makes is 'cloud' instead of a simple server share.