。
We saw something strange in the sky.
Literal
We [topic-は] sky [in-に] strange thing [object-を] saw.
A UFO-esque description. 変な物 ('strange thing') uses 変 as a na-adjective + な before the noun 物 ('thing'). に marks 空 as the location where the strange thing was. A textbook use of に for stative location of existence (even though here describing a seen object, not the observer's action of seeing).