So in the woodlands stable, there is a girl named Shamae who talks about "The Kingdom Floating in the Sky". This also leads to a side quest BUT I'M not going to spoil anything with that. Anyways this adorable bundle of joy starts off by saying "I sometimes see it in my dreams. Do you think that a long time ago people used to live in the sky?".

After you complete the quest she doses an adorable rhyme that involves balloons and floating to the "Land in the Clouds".

Then after that, she tells you her life's goal which is that SHE WANTS TO VISIT THE LAND IN THE SKY BY BALLOON, THEN RIDE A BIG BIRD.

After all of that including the quest, she tells you "good kids can see it! They can see the kingdom floating in the sky".

Ok, let's break this down a bit. So we can already establish that she is talking about Skyloft because SHE WANTS TO RIDE A BIG BIRD.....but the thing that is getting me confused is that she said that she sees it in a dream and that a LONG TIME AGO people USED to live in the sky....BUT THEN her life goal is to go up there and ride the crap out of a loftwing. AND YET IT IS IMPLIED THAT the great plateau was once Skyloft because OLD MAN HYRULE said that it was the birthplace of Hyrule.....that and if you compare the skyward sword map of Skyloft and THEN compare it to the great plateau.....well it's a match. BBBBBUUUUUUTTTTT the little adorable girl says that "GOOD KIDS CAN SEE IT, THE KINGDOM FLOATING IN THE SKY".

So let's set up some points so that we do not get mind-fucked by this adorable bundle of joy.

First off there is MORE than one thing floating in the sky. I mean LOOK at all of the islands in Skyward Sword. Then you have other games that mention civilization in the sky THAT BUILT THE FOUNDATIONS OF CIVILIZATION IN HYRULE. A good example is cloud tops in the minish cap. The wind tribe is a prominent civilization that resides inside of the GRATE PALACE OF THE WIND (but in the game, they are found in the tower of the wind tribe). Also, the wind tribe is the descendants of skyloft.....especially how close in the timeline Skyward sword and minish cap is.

And then we have twilight princess with "The city in the sky"............and those half man bird people.....anyways the in-game lure states that the Hyleans are descendants of this civilization........but those talking man bird things.......WHAT THE HELL ARE THOSE!?!?!

So with everything from backstory to the thing that this girl has told us, let's get to the main bit.....what the hell is she talking about? Are her dreams showing her Skyloft OR some civilization that MAY OR MAY NOT be up there in the sky?

Well, the answer is....yes, but kinda no....

Let me explain, as I stated up there on top that there was MORE than one thing that was floating in the air during Skyward sword. With that knowledge, we can apply that to both minish cap and Twilight. As time went on the population in the sky grew, and grew, and grew. Yes they could have settled down on the ground and a LOT of them have, but NOT all of them. So they most likely found a different rock formation in the sky and build structures from that land mass. Thus you have both the tower of the wind tribe and the great palace of the wind, AND later on, you have the city in the sky....with those man bird things.....

And also as time passed the power to keep Skyloft afloat was getting weaker. So it fell or it was lowered (since in the minish cap the wind tribe was able to do the same thing that the goddess did to Skyloft).

As for its location, you would think that it would have landed in the Faron area....but again as time passed the land mass probably drifted with the jet stream and plopped down North West of the Faron Woods. Not in the Faron area BUT REALLY CLOSE.

SO SHE IS NOT DREAMING OF SKYLOFT. But not entirely, remember that she did say "do you think that a long time ago people used to live in the sky". So she did at one point dreamed of Skyloft.

Now then for the FINALE thing. Why does she say "GOOD KIDS CAN SEE IT! THEY CAN SEE THE KINGDOM FLOATING IN THE SKY"?

My answer is that someone is sending her those dreams. Plain and simple