After creating light on the first day, God focuses His attention on completing the Earth.

Genesis 1:6-8  And God said, Let there be a firmament in the midst of the waters, and let it divide the waters from the waters.  7 And God made the firmament, and divided the waters which were under the firmament from the waters which were above the firmament: and it was so.  8 And God called the firmament Heaven. And the evening and the morning were the second day.

The Hebrew word translated “firmament” means “expanse” or “spreading out”.  It refers to the space above the surface of the Earth, which is why it is also called “heaven” in this verse.  The Hebrews thought of it as being where the birds fly or the “first heaven”.  We would call it our atmosphere or sky.  

Personally, I believe the dividing of waters refers to the difference between the water vapor in the sky (clouds) from the waters on the Earth.  Given that the average cumulus cloud weighs about 1.1 million pounds (http://mentalfloss.com/article/49786/how-much-does-cloud-weigh), this seems a likely meaning of this division.  However, Bible teachers differ on the interpretation.  Another school of thought is that there was a vapor canopy above the Earth prior to the flood of Noah which was expended during the 40 days and nights of rain.  This view is no longer prevalent among conservative scholars.  Regardless, the firmament separated “waters” in some way.

This completed God’s work on the second day.