The "man in the sky" is a euphemism for God. The christian God made Man in His own image, and "Heaven" or "heavens" can be used as a synonym for "sky". Ergo, "man in the sky" for "God in Heaven". The usage of "man in the sky" is akin to "down below" to refer to Hell, or "up above" to refer to Heaven.
"Man in the sky" allows one to reference God without blaspheming, calling upon Him in vain, or calling attention to oneself. There is often a touch of irreverence about the phrase also. For instance, instead of, "I'll get the laundry done before the rain comes, God willing," one might say, "I'll get the laundry done before the rain comes if the man in the sky allows it."
"Man in the sky" is generally used in reference to the christian God. Throughout the bible, God is referred to as Father, for instance, the Lord's Prayer starts, "Our Father, who art in Heaven." However the thought of a "man" in the "sky" may have been influenced by other mythologies in which there is a Father/King of the Gods or a god of the sky, a small selection of which are Jupiter, Zeus, An, Tengri, Indra, the Jade Emperor, and Horus.
Brevity Quest 2018: entry #2, 212 words.
Disclaimer: WU merely describes the phrase "man in the sky" and does not reflect the beliefs of the noder.