I recently read an article about replacing blown out skies with fake ones in Photoshop, and I decided to give the technique a try in the GIMP. After a couple of failed attempts, I arrived at what I think is a pretty realistic sky.
I shot this photo of my wife and daughter at the park, but the sky is completely blown out to white. (The dark corners are caused by the lens hood peeking into frame at wide angle. This is not a concern, since they can be easily cloned or cropped out.)
Select the sky using the Select By Color tool. (Press Shift-O and click on the sky.) This also selects the highlights (e.g., small glare on the slide and the SUV in the background, etc.), so you should deselect anything that is not sky. I also took this opportunity to add the upper-right corner to the selection.
Grow the selection by 1 pixel to eliminate "halos" of old sky showing through around the selection edges. Feather the selection by 2 pixels to avoid harsh contrast when painting in the new sky.
Add an alpha channel to the layer (Image:Layer/Transparency/Add Alpha Channel). Add a layer mask (Image:Layer/Mask/Add Layer Mask) and initialize it to white (full opacity). Make sure the layer mask is selected, then fill the selection with black. Finally, clear the selection (Shift+Ctrl+A).
Create a new layer below the Background layer. Name this layer "Sky." Set the foreground color to a sky blue color like RGB(128,192,246), and set the background color to a less saturated color like RGB(175,213,246). Using the Fill With Gradient tool (L), draw a short vertical line above the horizon. Notice that the sky becomes less saturated near the horizon.
Create a new layer between the Background and Sky layers. Name this layer "Clouds." Scale the Clouds layer to 1.5 the width (Image:Layer/Scale Layer).
use the Solid Noise filter to create some light clouds
use the Color Levels tool to increase the gamma to 2.00
Using the technique described in the Simulating Fog with The GIMP tutorial at GIMPguru.org, create some light clouds (Image:Filters/Render/Clouds/Solid Noise). You can create puffier clouds by using the settings Turbulent=on, Detail=7, X and Y size=5.5, then using the Color Levels tool to increase the gamma to 2.00.
Using the Perspective Transform tool (Shift-P), scale the Clouds layer to foreshorten the clouds.