All air contains water, but near the ground it is usually in the form of an invisible gas called water vapor.
The sun heats the earth's surface, which warms the air just above the surface.
The warm air rises, expanding and cooling as it moves upward.
Cool air can't hold as much water vapor as warm air, so as it cools some of the vapor condenses onto tiny pieces of dust that are floating in the air and forms a tiny droplet around each dust particle.
When billions of these droplets come together they become a visible cloud.