And God said, "Let there be an expanse in the midst of the waters, and let it separate the waters from the waters." And God made the expanse and separated the waters that were under the expanse from the waters that were above the expanse. And it was so. And God called the expanse Heaven. And there was evening and there was morning, the second day.
I have always understood this to be the creation of the atmosphere. What the earth was like before this, I am not sure, it doesn't say. These verses have also led to the canopy theory which helps explain the long lifespans and the flood. I don't particularly hold to or discredit the canopy theory, it is not important to me.
What I would like to point out is that God is not just speaking things into existence, He is also shaping and forming things. I believe that in the midst of these creative acts, God is writing the physical laws of the universe. He is bringing additional order to the initial creation. Remember that it was created "without form" so that He is bringing form to this formless creation.