Cloud drawing is a snap, and it's a great place to learn how to smudge your pencil lead when you are drawing.
Step 1 - The cloud shape
Create your shape using circular motions to define the outline. If you're having problems getting nice circles, go get a compass and use that to help you, but that will likely waste more time than it's worth, so just have fun with it and keep trying to get a nice shape and move on.
Step 2 - Adding Details
Add some additional details into the interior of the cloud drawing. Use the same circular style that you created the outline with. You can start to add in some shading once you have defined some interior shapes. Notice that I didn't add in TOO many details in the middle. I just added in enough details to make it interesting.
Step 3 - Shading and Smudging
Continue to shade in the entire cloud. When you are doing this - think of each of the circular shapes of the cloud drawing as a sphere, and shade it based on that shape. Once you have shaded in the cloud, use a paper stump, blending stick, or my personal favorite, your finger - and smudge the pencil lead together to help blend the shading. Don't go overboard when you are smudging or you can lose a lot of the nice light and dark variations in your pencil drawing.
That's it, you've just created a nice fluffy cloud! Learn how to draw clouds by watching this quick and easy video drawing lesson.