First you have to complete the Multi Story Renovations Quest, it is unlocked at lvl 17, however you might have to complete some other quests before it becomes available. (In this quest you are taught how to add floors).
When the quest is completed, another orange button is added to your edit mode options, it's called floor construction and looks like three sheets of paper, kinda.
After pressing the floor construction option, you must choose where to add a second floor.
You can't place stairs, floors, walls etc untill you've placed some rooms on the new floor.
After completing the multi story quest, you can start the Lovey-Dovey Balcony Quest, which lets you make balconies, also a cool thing to add to your second floor.
