The idea of a canopy of water comes from Genesis 1:6-7 (KJV), which says,
"And God said, Let there be a firmament in the midst of the waters,
and let it divide the waters from the waters. And God made the
firmament, and divided the waters which were under the firmament from
the waters which were above the firmament: and it was so."
Read literally, it means that there is liquid water on the other side of the firmament (solid surface of some sort), which would--according to models that incorporate this theory--be emptied back onto the earth in the flood.
As mentioned, there are pretty significant scientific problems with this model, and I think most modern creationist models would tend to favor a "soft" firmament, which would men that they consider the "firmament," which God calls heaven, the entire sky and outer space beyond. In this model, water and the celestial bodies aren't placed on a surface of the firmament, but are spread throughout the firmament.