Dynamics 365 On-line is hosted by Microsoft on their Cloud servers whereas Dynamics 365 On-premise is hosted in the Provider’s data center.
Like in SharePoint and Exchange, CSPs have an option to either opt for Dynamics 365 Online and Dynamics On-premises. Microsoft has provided many interesting solutions for Cloud users of which most of them favor the CSPs in terms of business return. The cloud, today, offers much more return in return of business investment. Companies today move to the cloud not only because it has become a necessity but also because it is the only way to proceed in order to catch up with NextGen business trends.
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