Where in the Zelda timeline does Skyward Sword fit?

Solution 1:

There's been new light shed on this, by Nintendo itself in the form of a Zelda artbook.

Source: Kotaku

Solution 2:

According to Eiji Aonuma (the series producer), Skyward Sword is set before Ocarina of Time:

I have already talked to Mr. Miyamoto about this so I am comfortable in releasing this information – this title takes place before Ocarina of Time. If I said that a certain title was "the first Zelda game", then that means that we can't ever make a title that takes place before that! So for us to add titles to the series, we have to have a way of putting the titles before or after each other.

...which would make it the first chronologically so far (at least according to Shigeru Miyamoto and those theories that previously put OoT first).

The timeline is generally contested and conflicting information is given. The wikia page linked above also includes the "generally accepted" order of groups of games, saying it's unclear how the groupings relate to each other.

Note also that Miyamoto has also said there's more than one Link, which further messes with timelines, although as Ashley notes in the comments they claim to have a magic formula that resolves all the paradoxes :P. I don't believe they have anything that makes any sense, personally.

Edit:

As expected, the timeline in Jeff's answer isn't as canon as it appears:

[T]ranslations of less sexy parts of the same book reveal that Zelda overseer Eiji Aonuma has thrown up some pretty hefty disclaimers over the canon of the timeline.

Chapter 2, "The Full History of Hyrule," arranges the series in chronological order so it's easier to understand, but from the very beginning, Zelda games have been developed with the top priority of focusing on the game mechanics rather than the story. For example, in Ocarina of Time, the first installment of the series I was involved in, the main theme was how to create a game with pleasant controls in a 3D world. Or in the DS game, Phantom Hourglass, the focus was having comfortable stylus controls. Finally, in the most recent game, Skyward Sword, we focused on an easy way to swing the sword using the Wii motion plus.

Thinking of that way of developing the games, it may be correct to say that the story is an appendix to that. I even think that setting Skyward Sword as the "first story," was merely a coincidence.

While reading over "The Full History of Hyrule," it's possible that some parts may look contradictory. For instance, the Mogma race or the beetle item that appear on the very first story do not appear on any other game that takes place in the future. I'd like to ask everyone just to enjoy the book and to be broad-minded, and to think that those parts are the way they are because of the way Zelda games are developed.

In other words, it's a timeline, sort of, but only in so far as it's what they've thrown together and casually arranged after the fact. So those people stressing out over why some parts fit the provided chronology and some parts don't, relax!

This Loldwell comic captures all of this pretty well:

Solution 3:

Seeing as the game involves the creation of the Master Sword, you can assume that it must come before any games that include said sword (or are clear sequels to such games). So, the only games that could possibly come before it are:

• The Legend of Zelda (assuming that Magical Sword is not the Master Sword, as a theory goes)
• Zelda II: The Adventure of Link (same as above)
• Four Swords Adventures
• The Minish Cap

So, Skyward Sword must come before any of the other games, while it may or may not precede the ones in the above list.