First of all, let us look at what a traditional business is. The sole purpose of a business is to provide something of value, either in the form of goods or services, to another person or entity. If this value is something that people are willing to pay for, then that business is viable.
But this provision of value is only one small part of the whole equation. For the business to grow and be profitable, people need to know about it. And continuously getting new clients is the lifeblood of any business.
People can be reached through a wide variety of medium such as newspapers, magazines, television, radio, direct mail, word of mouth, internet, etc.
There you have it. The internet is no more than a medium for a business to reach new customers. No difference from what the other mediums are.
One important distinction is that using the internet as a medium can be cheap compared to the other mediums. Not everyone can afford to advertise on the television but practically anyone can start their own website. Advertising on the internet can also be very effective if done correctly.
If someone says internet business, we can assume that he is refering to a business that relies primarily on the internet to find their clients. However, we must not forget that the internet can also be used by a traditional business to reach out to more clients. Any business that relies on only one or a few ways to reach out to new clients is probably missing out on tremendous growth potential.