When the sky is cloudy, it's so full of clouds that you can't see the sun. A cloudy day isn't ideal for a trip to the beach, and a cloudy night isn't great for star gazing.
A cloudy sky tells you that rain's on the way, while a cloudy pond or a cloudy glass of water isn't translucent — you can't see through it. You can also describe an issue, thought, or memory as cloudy when it's vague or half-remembered or unclear. Cloudy comes from the Old English word clud, "mass of rock," and later "cloud," based on the way a cloud can resemble a rock or hill.