In Book XII, Augustine brings his ideas of memory and time (from Books X and XI) to bear on issues surrounding the story of the creation. His main concern here is to address the diversity of opinion regarding the precise meaning of Genesis by focusing on the use of language. While accepting that scripture has more than one 'true' interpretation, Augustine devotes significant time to delineating the limits of possible exegeses. This Book contains a great deal of hair-splitting with regard to phrases like 'heaven and earth,' and repeats much of Augustine's own reading of Genesis found in Book XI--take the more involute and confusing parts with a grain of salt. This Book retains import chiefly for its basic layout of the concepts of formless matter and the 'heaven of heaven.'
[XII.1-8] Augustine begins with the question of priority in the creation (he loosely defines 'priority' later in Book XII). The text of Genesis describes a nascent earth as 'invisible and unorganized,' in Augustine's reading - an earth comprised of fluid 'formless matter.' Genesis further implies that the initial 'heaven' was not the starry firmament but rather the 'heaven of heaven'--God's 'house,' the angelic order of being nearest to him.
It's important to remember here that Augustine has already posited the non-temporal sense of the phrase 'in the beginning' (Book XI): the beginning is not a time at which God created the heavens and the earth, but rather the eternal, unchanging wisdom (which is also the nature of Christ) in which he created them.
Augustine argues that the visible heavens and earth are not primary in creation; rather, God constructed their concrete physical aspects from a totally 'formless matter' that was created 'first' (again, this 'first' has an ultimately non-temporal sense). This, he says, is the sense of the 'earth invisible and unorganized.'
This formless matter is virtually a quasi-nothingness; it is at the bottom of the Neoplatonic hierarchy of being, furthest from God, since it is matter (which is unlike God) without form (form being more godly than formlessness), and possessing the weakest claim to actual existence. The idea of formless matter is often difficult to grasp - the definition itself refers to the inscrutable quality of this type of 'unintelligible' matter. Augustine again partly blames Manichee theology for muddying his conception of this idea. With an emphasis on the visual, Augustine previously pictured formless matter as 'many different' horrible forms in constant flux rather than viewing it as completely lacking all form.
To reiterate, Augustine emphasizes that formless matter is almost nothing--a kind of 'nothing something' with so little existence that he freely refers to it simply as 'nothing.'