Okay, those skeptical readers that believe that all Christians are wing nuts are in for a treat today, because day two of creation is where my personal beliefs are, I realize, more than a bit out there. Of course, my personal beliefs do not reflect the whole of Christendom, but I didn't come up with this stuff on my own, and when you get to an odd passage like this, you have to develop some sort of understanding.
The SAB lists this passage as an "absurdity", and I'll be the first to agree, but once again, we're talking about the miraculous, and the stuff that happens during the first few chapters here is largely outside of the norm for the whole of natural history. Many translations find different ways to fit an English term to this "firmament", but the essence of the idea apparently is that the Hebrew word raqiya in this context denotes the idea of a large solid object that's holding up a sky full of water. Yes, the world as described by these three verses is a big underwater dome. The atmosphere is made by creating an air bubble in an endless sea, held open by this undescribed structure.
My belief? There's a theory about the antediluvian age among many Bible believers known as the "water canopy" theory. The idea here is that God originally created the world with the ocean waters suspended in the air, holding in a warm, moist atmosphere. Supposedly, this accounts for a number of things which come to their end in the flood of Noah's day. People living long, healthy lives due to a clean, oxygen-rich atmosphere and lack of cosmic radiation; largely unchanging weather conditions (it may have never rained before Noah's day!); and, some believe, the coexistence of dinosaurs with humanity. While a lot of this sounds pretty bizarre and silly, suspending your disbelief regarding this suspension of water you can see solves many other Biblical dilemmas, thus its appeal.
For probably most people, however, this passage is taken to be poetic in nature. While the sky is most certainly not a solid object as far as we know (and given that we have traveled into space in modern times, it seems we can rest pretty sure about that) the concept of haraqiya as a "bowl" shape still has some appeal. After all, even after the flood the term is still used to describe the sky numerous times; and really, isn't the sky shaped like a bowl wherever you look at it from the ground? There's a reason observatories and planetariums are domed: it's the essential shape of the sky.
And what of the "waters above the firmament"? Well, those would just be clouds. If this explanation doesn't suffice to fit your concept of "above", then I would say wait for the fourth day, I'm going to take some time to talk about translation and prepositions. It should either clear things up immensely or convince you more than ever that I'm a crackpot. Either should be entertaining.
Remember also that when God calls the firmament "Heaven", that there is some vagueness to that word. In the NT, the Apostle Paul refers to the "third heaven", and is clearly talking about what we tend to think of in reference to the word "Heaven". However, this concept of "third" is important, as there were three heavens. The first heaven is the atmosphere, the second heaven is outer space, and the third heaven is beyond space, the place where God lives. Many translations render "Heaven" in verse eight as "sky", because the Bible seems to clearly be talking about the atmosphere.
The SAB makes an interesting note that God doesn't call the second day "good." No explanation is given. I don't find this troubling, only thought-provoking. One possibility that I like, being a believer in the "water canopy" theory, is that when God creates the world with this form, He's looking ahead to the day when all this water He has put in reserve will be used to wipe clean the face of the earth. He's not happy about it, but He foresees it coming, so He makes this water canopy with a heavy heart, so to speak. Who knows?