Adding Realistic-Looking Clouds to an Image

We will start off with the following image. Let's add a more appealing sky, including wispy clouds. The first thing we want to do is extend the image, to make more room for the sky. Goto Image > Canvas size. This image is currently 400x300, so we'll make it 400x400px:

We'll move the photo to the bottom, and then choose the gradient tool to recreate the sky in the gap:

We can smooth the edges with the eraser tool with a soft brush to blend the two layers a little better:

It doesn't need to be perfectly seamless, as we'll be overlaying clouds.
Next, press the Q key to go into Quick Mask mode. Then goto Filter > Render > Clouds. You should get a cloudy red look to your image:

Now goto Filter > Render > Difference Clouds. Then press Ctrl+F to repeat this 3 or 4 (or more). You will notice the red haze change.

Now press Q to exit out of Quick Mask mode. You should be left with a selection of random pixels like so:

Choose a Marquee tool, create a New Layer and right-click the selection, then choose Fill. We want to fill with White. Press Ctrl+D to deselect when filled:

Now goto Edit > Transform > Skew, then re-arrange the clouds to match the skyline, like so:

Now all that is left to do is to erase the clouds around the foreground. Choose the erase tool with a soft brush, and erase around the foreground image: