Yes, the beauty of that is that if you can handle spikes with EC2 (or any other cloud provider) quickly, then you can load the servers that handle your base load much, much higher.
You might not even need to spawn EC2 images very often - many sites have daily variations that are too small for it to really be worth it. If your hosting is cheap, spawning EC2 images for more than 6-8 hours per day might already be ineffective compared to renting more servers on a monthly contract. But just having the ability might make the difference between aiming for a peak utilization of, say, 50% of your servers, in case of unusual peaks or server failures, and aiming for a peak utilization of 90%+.
You might not even need to spawn EC2 images very often - many sites have daily variations that are too small for it to really be worth it. If your hosting is cheap, spawning EC2 images for more than 6-8 hours per day might already be ineffective compared to renting more servers on a monthly contract. But just having the ability might make the difference between aiming for a peak utilization of, say, 50% of your servers, in case of unusual peaks or server failures, and aiming for a peak utilization of 90%+.
That can make a huge difference in cost.