1. Creating a background
Draw a sky blue rectangle with the Rectangle tool. Cover the entire artboard. You can resize it later. After you are done lock the layer and name it ‘sky’.
2. Drawing the basics
Create a new layer and name it ‘cloud’. Pick the Ellipse tool and draw some flat ellipses and combine them as shown below.
3. Uniting the objects
Pick the Selection tool and select all the objects. Then click the Unite command in the Pathfinder palette. This will combine all the objects into one.
Toggle the cloud outline to a fill and colour it with white.
4. Offsetting the objects
Paste the copy of the cloud in front of the original (EDIT > PASTE IN FRONT). Fill this object with gray colour. Then, PASTE IN FRONT again to place another cloud on top of the grey cloud. You will get a white cloud. Offset this one above the grey object as shown.
5. Applying Minus Front command
Choose both the objects and click on Minus Front filter in the Pathfinder palette. The white object will cut into the grey object leaving only the grey portion. To avoid the unwanted part of grey in the image ungroup (OBJECT > UNGROUP) the objects and then delete the unwanted portions.
6. Applying drop shadow
Now, Unlock the original cloud object (OBJECT > UNLOCK ALL). Choose it and the grey object. Group them (OBJECT > GROUP). From the Effect menu, add a drop shadow (EFFECT > STYLIZE > DROP SHADOW). Use the following settings.