The Legend of Zelda: Skyward Sword StorylineWarning: Potential spoilers ahead
Firstly, in terms of the Zelda timeline, Skyward Sword is set before Ocarina of Time. One of the main things that Skyward Sword will explain is the creation of the Master Sword, hence it's chronological position before Ocarina of Time.
The game is set in two worlds. Link is a resident of Skyloft, a land that exists in the sky above the clouds. The land beneath the clouds of Skyloft is a dark land, that Link enters into (this is probably what was signified in the Skyward Sword trailer, when Link jumped from a ledge down into the clouds, though I don't know how he manages to do this safely without falling to his death!). The people of Skyloft know next to nothing about the mysterious land that exists beneath them, but I'm sure there is something pretty evil about it.
What about the Skyward Sword itself? It turns out the Skyward Sword is a powerful, magical entity. As well as being a weapon, the sword can transform into a human-like form, the same character that was shown in the original piece of artwork that was released for the game last year. Somehow, the Skyward Sword develops into the Master Sword.
What exactly is the land beneath Skyloft? What the Skyward Sword, and why does it become the Master Sword? Such questions are currently unknown!