The juxtaposition of the green light at the end of Chapter One with the Valley of Ashes and the "grey cars" and "grey land" and "bleak dust" of Chapter Two offers an ironic contrast, a contrast that points to the the corruption of man and the theme of waste. With the rementioning of "grey turning" with the dawn after Gatsby's romantic reminiscences of Daisy in Chapter Eight against the reality of her having run over Myrtle Wilson, there is clearly the same ironic contrast and theme of waste and its insignificance to the wealthy. As Nick takes the train and passes the ashheaps, he looks to see if a curious crowd have assembled near Wilson's garage, but finds instead that "Myrtle Wilson's tragic achievement was forgotten."
With the additional mention of "yellow trolleys" and "yellowing trees," there is the suggestion of criminality to Gatsby's dream that has now descended to the mundane in the "grey turning" of the next day. In the meantime, Michaelis sits with George Wilson whose
glazed eyes turned out to the ashheaps, where small grey clouds took on fantastic shapes and scurried here and there in the faint dawn wind.
These clouds are symbolic of the clouded thinking of George Wilson who believes that the man in the yellow car that killed his wife was the owner of that car. These clouds mimic the mind of Wilson whose anger and jealousy also take on "fantastic shapes" as he looks at the eyes of Doctor T. J. Eckleburg; he tells Michalis, with "scurrying thoughts" that he held his wife at the window saying,
"God know what you've been doing, everything you've been doing. You may fool me but you can't fool God!"
When Michalis tries to assuage Wilson's thoughts, the man only holds his face to the window, "nodding into the twilight," symbolizing the waste to come, the last day of Gatsby's life and Wilson's imprisonment. This situation with Wilson parallels the previous mention in this chapter of the "grey turning" light on Long Island after Gatsby's recalling to Nick of his former acquaintance with Daisy, the last days of his youth. Oddly, both incidences--Gatsby's death and Daisy's disappearance--are of little significance but some waste.
The first part of the sentence you ask about explains that it is George Wilson who sees the "small gray clouds" as he looks out over the ashheaps, with the dust blowing about and creating "fantastic shapes." The sentence expresses Wilson's disbelieving, almost uncomprehending sense of loss and mystification about what had happened to his dreams and plans.
Throughout the book, all colors are used for very specific reasons. Gray is the color associated with insignificance or unimportant people, as George Wilson always perceived himself to be considered by Gatsby. At the point in the story you cite, Myrtle has been killed by the hit-and-run driver, and George's suspicions are building.
By the end of the chapter, George has "scurried here and there" gathering information related to the accident and has developed his plan of action. When Gatsby is floating in his pool late that afternoon, as he was reflecting on the recent events and realizing how his perception of the world had been changed.
A new world, material without being real, where poor ghosts, breathing dreams like air, drifted fortuitously about...like that ashen, fantastic figure gliding toward him through the amorphous trees.
Of course, that "ashen, fantastic figure" was George Wilson, coming to shoot Gatsby, and then himself.