The following diagram details the development options available in SharePoint Online (Beta): use the server object model available to sandboxes solutions, or employ the client object model and client-side code to access additional data that is available through the SharePoint web services, or data from external sources.
In SharePoint Online, subscribers own and administer site collections, instead of entire farm installations; therefore, the development approach to SharePoint Online is necessarily scoped to the site collection. Because of this, sandboxed solutions and the client object models form the foundation of developing for SharePoint Online.
A specialized type of the SharePoint solutions framework, sandboxed solutions provide a framework for developers to create, and for SharePoint Online administrators to upload and activate, custom code solutions to SharePoint Online. Sandboxed solutions run in an environment that has access to a core subset of the server object model. The sandboxed solutions framework gives developers access to the major objects at and below the site collection level.
In addition, you can use the client-side code to access the web services that SharePoint Online makes available and external data sources. Because of this, client-side code is a useful option if you need to access either objects beyond those included in sandboxed solutions, but available through a SharePoint Online web service, or external data.
For more information on developing solutions for SharePoint Online, see SharePoint Online: An Overview for Developers, from which this diagram is excerpted.