Lie low in your meadowed blue-canopy bed, I though you were stones but you're white sheep instead!
Pillowing pastures as stones might a hill meandering the meadows as stones never will.
Tufting my mind with rhymes of Bo-Peep; shepherding thoughts serenity deep.
Someone is lying in bed, looking up, and seeing something that isn't quite what it seems. The "meadowed blue-canopy bed" suggests a sky overhead, and the speaker first takes the shapes in it for stones, then realizes they're soft white sheep. Judging by the title and the pillow-like softness in the second stanza, the "stones" and "sheep" are probably clouds, or perhaps the lumpy pillows themselves, dissolved into a pastoral dream.
The speaker's feeling is a gentle, amused relief. Stones are hard and still; sheep are soft and wander, and the poem plays on that difference ("as stones never will"). The mention of Bo-Peep, the nursery-rhyme shepherdess, tells us the mind is drifting back to childhood comforts. By the end, thoughts themselves become sheep to be shepherded.
The mood is drowsy and serene, helped along by the short lines and chiming rhymes, which feel like a lullaby. It's less about a big idea than about the quiet pleasure of letting your imagination turn the ordinary into something peaceful.