Skyward Sword begins in a village called Skyloft atop an island floating in the clouds. The people of this village fly on large colorful birds and worship a single goddess, a statue of whom is located at the top of the island. All that the people of Skyloft know is the sky; the world above the clouds and their birds are their entire life. The place below the clouds is seen as dark and evil.
Link is a seemingly normal boy living in the village, him and Zelda sharing a close friendship. Zelda is an important person in Skyloft, such as a princess or priestess. Link wakes up and talks to many of the villagers then goes to see his red bird. Later there is a bird riders' festival and a birdriding competition, the prize of which is given by Zelda herself. Link enters the competition with his bird, and at the ceremony Zelda delivers a small statue that is then carried off by a bird. Link must then prove his skills as a birdrider by taking this statue from the bird. He and several other competitors chase after the lead bird, but as Link gets close to winning the other two riders attempt to stop him. Still, he eventually passes the test and is excited to tell Zelda.
When Link arrives to tell Zelda, she simply jumps off of Skyloft, trusting that Link will catch her. Later they are riding on a bird alone together when a tornado appears from the land below and knocks Zelda off her bird. Link reaches for Zelda but is unable to save her as she is quickly snatched out of the sky by a mysterious whale. As Link falls, a woman-like figure appears from above. This humanoid form of the Skyward Sword called Phi saves Link from the tornado. Link is totally unaware of what the Skyward Sword or Phi are, but he is determined to save Zelda. Back in the village he is given the garb of a warrior and dives to the land below with the power of the Skyward Sword in search of Zelda.
The land below is ruled by evil. While looking for Zelda within a dungeon called the Sky Temple, Link meets the supposed ruler of that evil. He appears in a blinding flash of light, causes his sword to disappear, and comments how he thought Link would have been torn up in the tornado he had created. But he says that Link's life doesn't matter, only Zelda's does, and he can sense "her holiness" beyond the door in the next room. He introduces himself as the demon who rules over the surface, Lord Ghirahim, stating that he prefers to be known by his full title.
Link draws his sword and Ghirahim taunts him and calls him foolish. He claims that Zelda should have fallen into their hands already, that she was almost their's when "that loathsome servant of the goddess" snatched her away. Ghirahim now grows angry, stating how much it enraged him. As he thrashes his arms in anger, the bright colors of the room darken and distort in his rage, and then he teleports away, leaving the color drained from the room. His disembodied voice speaks, saying that these events have left him with a strong apetite for bloodshed. He appears behind Link, leaning over his shoulder and startling him. Ghirahim doesn't think it's fair to take all of his anger out on Link, so he reassures him he won't murder him, but instead will beat him within an inch of his life. He then looks up and licks out at the air insanely with his long tongue.
Link jumps away, ready for battle. Ghirahim dematerializes his mantle and begins to toy with Link as they fight. Eventually Ghirahim draws his sword again and begins teleporting, but Link manages to last long enough for Ghirahim to comment on his skills, telling Link that he's better than he ever could have thought possible out of such a soft boy. He says Link shouldn't celebrate; the Skyward Sword is the only reason he's still alive. He's spent too long toying with Link; Zelda's presence has faded and he has no reason to stay. Ghirahim tells Link to run and play, but if he ever crosses him again he will die.
Link will spend much of the game searching for his dear friend Zelda, and throughout his journey the sky will be very important. He shall unravel the mystery of why Hyrule and the islands in the sky have been separated and much of the plot will include the forging of the Master Sword and shall also lead up to the events of Ocarina of Time. Ghirahim is part of a tribe that rules over the land, and they seek Zelda's holy power. He is not the only villain, and it is unclear what part his cohorts may play in the story.