Lines 7-8

Continuous as the stars that shine
And twinkle on the milky way,

• The emphasizes the point that there are a whole lot of daffodils. More daffodils than he has probably ever seen before. After all, these are flowers that usually grow in scattered groups in the wild or in people’s well-tended gardens.
• The flowers stretch "continuously," without a break, like the stars in the Milky Way galaxy, each one gleaming like a star.
• The comparison to stars provides new evidence that the speaker is trying to make us think of angels or other heavenly beings.

Lines 9-10

They stretched in never-ending line
Along the margin of a bay:

• Like the Milky Way galaxy, the flowers are roughly concentrated in a line that seems to stretch as far as the eye can see ("never-ending"). They flowers line the shore ("margin") of a bay of the lake, which must be a relatively large lake.
• If you’ve ever seen the Milky Way (or the photo in the link above), you know that the galaxy appears to be a band that has more stars and a brighter appearance than the night sky around it. It’s not a perfectly clear line, but more like a fuzzy approximation of a line. We imagine the same effect with the flowers. It’s not as if there are no flowers outside the shore of the lake, but most are concentrated on the shore.

Lines 11-12

Ten thousand saw I at a glance,
Tossing their heads in sprightly dance.

• The speaker takes in "ten thousand" dancing flowers at once. That’s a lot of daffodils.
• Wow, he’s fast at counting if he knows the number after only a quick glance. But, of course, the speaker is not actually counting, but just guessing. (It's like when you try to guess the number of gumballs in a jar.)
• The flowers "toss their hands" while dancing to the wind. By "heads" we think he means the part of the flower with the petals, the weight of which causes the rest of the flower to bob.
• "Sprightly" means happily or merrily. The word derives from "sprite," which refers to the playful little spirits that people once thought inhabited nature. "Sprites" are supernatural beings, almost like fairies.