I'm not fully sold on the practicality of cloud gaming just yet, but the idea is intriguing. You subscribe to a video game streaming service and just like other streaming platforms, you can consume content (play video games) from any supported device without needing to download the actual content, in this case, video games which can often be several GB in size and could take hours to download depending on your internet connection. In due time the teething issues may eventually be ironed out and the future of cloud gaming could be substantially brighter, but that future will not be on iPhones.
Apple justifies this decision by claiming that the company can't review and approve the games that are available on either platform, which is something the App Store is notoriously known for. Apparently this is to "protect consumers" from apps/games of poor quality. This excuse however doesn't seem to be convincing anyone.
Many people are convinced that the only reason Apple is doing this is because A) they can't monetise these gaming platforms for their own profit, and B) Apple doesn't want competition for its own Apple Arcade game subscription service. Both claims are very plausible, and dare I say, much more likely than Apple's "can't review all the games" excuse.
Regardless, it looks like iPhone users won't be part of the larger cloud gaming revolution and will be restricted to Apple's Arcade moving forward.