This is the floating kingdom of the Sky Gnomes. It travels the tradewinds, high in the sky.
In a battle near the end of the Chaos Wars, a wild magic storm caused a gravitic effect that lifted a large area (including mountains, forests, lakes and rivers) into the sky. This effect lightened the stone enough to float and send it into the sky. Water that ran into the affected area also followed the new natural laws.
This became the Skylands. The first mountain to be so lifted became the capital, Skylandia. Other islands eventually rose as well, when they were affected by similar means. Some were even lifted artificially.
Flora & Fauna
Some fish evolved lungs, because much of the water became airy water (see the spell). Many other animals gained the ability to fly or float.
Common animals: gryphon, bulgrif, sky whales or sharks, transparent floating jellyfish, flying fish, bore vines, piranha birds, ghost sharks (clear), sky pirates, etc.