Cost Optimization in cloud computing refers to the practice of minimizing costs while maximizing the value of resources in a cloud environment. It involves strategies and techniques to manage and control cloud spending, such as selecting the most cost-effective cloud services, efficiently utilizing resources, and taking advantage of pricing models and discounts offered by cloud providers.

Cost Optimization works by continuously monitoring and analyzing cloud usage and spending, and then making adjustments to improve efficiency and reduce costs. This can involve a variety of strategies, such as right-sizing resources to match demand, using reserved instances or spot instances for cost savings, and automating tasks to reduce manual effort and error.

Cost Optimization is an ongoing process that requires regular review and adjustment as an organization's needs and cloud usage patterns change. It's also important to consider the balance between cost and other factors, such as performance, security, and availability.

For instance, a company might use cost optimization strategies to reduce its cloud spending. This could involve right-sizing its compute instances to match actual demand, using reserved instances to save costs for predictable workloads, and setting up alerts to monitor for any unexpected increases in spending. By doing so, the company can ensure it's getting the most value from its cloud investment.