Actually there are three allocation types:

• on demand - kind of "default" mode. You request an instance, if there is free capacity, you will get the instance. No long term commitment, but once you get an instance, it's yours. It may happen that you will get a message that there is no free capacity for the specific instance type and AZ (so far it happened to me only once with AWS).

• reserved - AWS reserves the capacity for you. You have guarantee that you will get the instance type in the selected region or AZ.

• spot instance - it's kind of auction / bidding of unused capacity. You ask for an instance, you provide your maximum price and if there is free capacity and your price is at the current price or higher, you will get an instance. The difference is - if the free capacity is exhausted, or the current price is higher than your maximum bid price, your spot instance is terminated . You can get a termination warning event upfront.

Amazon EC2 servers are charged for each hour you use them. So a Small server in the us-east zone will cost 13 cents/hour or .13 * 24 * 30 = $93.60/month. It doesn't matter if you're using 10% of the CPU or 100%, it's the same hourly rate. If you have a long-term need for compute resources, you can save money by purchasing a one year or three year reserved instance. (by paying an upfront fee to "reserve" the instance, you can pay a lower hourly rate).

You'll also pay 12 cents per GB of outbound bandwidth (first GB is free, prices get cheaper above 10TB of data transfer)

Additionally, you'll pay for storage, if you have 100GB of storage allocated for the server, you'll pay 10 cents/GB-month, or 100 * .10 = $10/month for that storage.

You also pay $0.10 per million I/O requests. That's a bit harder to estimate, but tends to be minimal unless your server is doing a lot of I/O. You can minimize this cost by moving high I/O files to ephemeral block storage or even a tempfs memory based filesytem to reduce EBS disk I/O's.

The pricing is detailed here: http://aws.amazon.com/ec2/pricing/

And they have a usage cost calculator here: http://calculator.s3.amazonaws.com/calc5.html

If you have well defined peak and off-peak usage hours, you can save money by scaling your server usage to meet demand.

For example, one simple way to do this if you can stand some downtime, is to restart your server as a larger instance in the morning to cover peak demand, then restart it again as a smaller instance in the evening to handle the slow, off-peak hours. You can script this by using the AWS API.

To avoid downtime, you could use an AWS load balancer (there is a fee for this) and have 2 server instances - start up the big one during peak time and then shut down the small server, then during off-peak, start up your small server and then shut down the big one.

AWS also provides ways to monitor your server load and automatically scale your servers up and down to meet load, but this is probably overkill for a small site.