As I understand it that is how it works - you have one central install of drupal and then different users have their own versions of config settings (and, I think, their own SQL databases) to tailor the system to what they want. Just saves everyone installing it privately.

I haven't tried it in this mode though so I am not 100% of what is required or how it is set up.

Mouser:
I think a blog hosting operation is a great idea.  Whatever system you make available I think one of the criteria should be simplicity.