If 'sky' is called 'cloud', 'cloud' is called 'thunder', 'thunder' is called 'water', 'water' is called 'pot', 'pot' is called 'desert', and 'desert' is called 'sky', then where do fish live? 

pot

Given; If 'sky' is called 'cloud', 'cloud' is called 'thunder', 'thunder' is called 'water', 'water' is called 'pot', 'pot' is called 'desert', and 'desert' is called 'sky', 

So,

If sky is called cloud

cloud is called thunder

thunder is called water

water is called pot 

pot is called desert

and, desert is called sky

Thus,

Fish lives in water and water is called POT

So, fish lives in POT.