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caffeinade said:
https://www.youtube.com/watch?v=9nxlmCq4220
The power of the cloud doesn't seem to be doing all that much for the game.
Look at the interaction between the ships and the water.
Granted, it is an early build of the game on display.

GDC is right around the corner: I expect to hear more then.

Going by that vid, it seems they use "the cloud" (I hate that buzz word that really just means servers), to synchronize the waves across consoles, not calculate the physics for them.  In fact, it seems the waves have a set pattern to how they move based on the time it is, so it doesn't exactly react to the ships.