The third line of "Dover Beach" consists of the end of one sentence and the beginning of another. The speaker is contemplating the moon which lies "fair / Upon the straits." This is a reference to the Straits of Dover, a narrow passage of water separating the Southeastern coast of England from France. That the moon is described as lying "fair" upon the passage is in keeping with the mood of the poem's opening, which is calm and measured. This provides a contrast to the more pessimistic mood that sets in later on, when the speaker contemplates the retreat of traditional religious faith in the modern world.
But even before then, the mood already starts to change in the third and fourth lines:
. . . on the French coast the light
Gleams and is gone . . .
The Straits of Dover are so close to France that from Dover Beach it's possible to see a light on the other side of the English Channel. But that light soon goes out, hinting ominously at the darkness into which humankind will be plunged by the slow, steady retreat of the "Sea of Faith."