Floating Islands are naturally spawning structures in Terraria. They consist of a large bank of clouds high up in the sky with a house and usually a chest with goodies on top. You need to reach one for the trophy.

There are two ways to do this. One is to put on some good wings and spend a while flying around high up looking for islands. The other way is to make a new character on the highest difficulty, load up your world, and die. On the highest difficulty you turn into a ghost when you die, and can fly around looking for an island. Once you find one, load up your original character, go to the spot, and find the island for the trophy.

Also, since the islands are always near the top of the world, if you fly up from an island, you'll likely hit the top of the world, causing Head in the Clouds to unlock.