A fanciful or ideal realm.
It is nice for once to have a definite and unambiguous origin for an expression. Cloud-cuckoo-land was coined in Aristophanes' whimsical and extravagant play, The Birds
Chorus leader: So what name shall we give our city?
Pisthetairos: Well, do you want to use that mighty name from Lacedaimon - shall we call it Sparta?
Euelpides: By Hercules, would I use that name Sparta for my city? No. I wouldn't even try
esparto grass to make my bed, not if I could use cords of linen.
Pisthetairos: All right then, what name shall we provide?
Chorus leader: Some name from around here - to do with clouds, with high places full of air,
something really extra grand.
Pisthetairos: Well, then, how do you like this: Cloudcuckooland?
The play was first translated into English by the poet and translator Henry F. Cary, in 1824, which is the date of the entry of 'cloud-cuckoo-land' into the language.
See also; Never-never land.