Donald H. Lenschow, a senior scientist at the National Center for Atmospheric Research, offers the following explanation:
Clouds form whenever and wherever there is more water in a particular volume of the atmosphere than it can hold as vapor. The point at which air holds as much water vapor as it can without liquid water forming (condensation) is called the saturation point. When air cools, the amount of water vapor it can hold decreases. The most effective cooling process in the atmosphere is lifting. As air rises, its presssure decreases, thereby allowing it to expand and cool. With sufficient cooling, the air reaches saturation and small cloud droplets begin to form. The number and size of the droplets depend on the degree to which the atmosphere is oversaturated, and the number and characteristics of tiny particles, called cloud condensation nuclei, on which the water condenses. When enough droplets of at least a few tenths of a micron form, they become visible as a cloud.
There are many different types of clouds; which kind forms depends mostly on temperature, the rate of temperature change with height (lapse rate), and processes that generate atmospheric turbulence. Three common cloud types are cumuliform (characterized by vertical development in the form of rising domes or towers), stratiform (characterized by horizontal development in the form of layers that can become many kilometers thick at low- to mid-levels) and cirriform (ice clouds occurring in cold air, usually in relatively thin layers at high altitudes).
A common example of cumuliform clouds is fair-weather cumulus that occurs during the day over land. The sun heats the surface, which produces plumes of buoyant rising air. Given sufficient water vapor to reach saturation, clouds can form at the tops of the rising plumes. When condensation occurs, the heat that is given off warms the air and can cause more lifting and more cloud. At the same time, the mixing of cloudy air with the clear air in its environment, and the descent of at least some of the cloudy air, cause cloud droplets to evaporate. Depending on environmental conditions, the cloud may continue to grow for some time and possibly produce rain or become a thunderstorm. More often, however, the cloud will dissipate, owing to mixing or descent.
If temperature increases so rapidly with height that clouds cannot grow vertically, stratiform clouds occur. These clouds can persist for longer periods of time (perhaps days) because they are often in regions of general lifting and high humidity. Similarly, cirriform clouds can also be long-lived, since, like stratiform clouds, they are usually layered, and ice crystals vaporize more slowly than water droplets evaporate.
Thus, clouds have some similarity with smoke in the air or dye in a glass of water, but significant differences exist, too. In all cases, turbulence in the fluid tends to diffuse, or mix out the tracer. A major difference between smoke and water clouds, however, is that a water cloud can continue to generate more and bigger droplets by condensation if it is rising, and cloud droplets can evaporate if the cloud is sinking. In contrast, if smoke is introduced into the atmosphere above the turbulent layer near the surface, it can persist within a well-defined layer for many days, as exemplified by plumes from forest fires, power plants or volcanoes, which can inject smoke well above the surface. The condensation trails (contrails) that form in the wake of high-flying jets are another interesting example. These cylindrical clouds have variable lifetimes and water concentrations depending on environmental conditions. In some cases the contrails can persist for many minutes. But they do slowly diffuse, much like the smoke plume emitted by an acrobatic aircraft.
Since clouds are central to all weather, observing clouds can be useful for predicting weather. A large cloud mass with rising domes or towers directly upwind, for instance, will soon pass overhead as a thunderstorm. But there are more subtle clues, too. Increasing cirriform clouds overhead, especially if they evolve into thickening and lowering cloud layers, indicates air being lifted, often in advance of an approaching front. And increasing vertical development in cumulus clouds can indicate an increasing probability of storms. Conversely, if cumulus clouds become ragged at the edges and show no sharp-edged dome-shaped structures, the likelihood of imminent storms or precipitation is reduced. There are many more examples given in popular books on weather that point out relationships between clouds, their properties and weather systems.