The Sauce Labs OnDemand testing service is a cloud-based solution built around the Selenium testing tool, allowing users to utilize existing scripts for functionality and performance testing. The service provides "robotically controlled browsers" as a resource, addressing the issue of underutilized test resources in organizations that experience fluctuating usage. By leveraging the cloud, Sauce Labs aims to optimize resource utilization and provide a cost-effective solution for CIOs and CTOs who need to maximize their return on idle resources.