Jeff, this is from Wikipedia, Warhttp://en.wikipedia.org/wiki/Balloon_(aircraft)
The Union Army Balloon Intrepid being inflated from the gas generators for the Battle of Fair Oaks (caption under actual photo)
The first major-scale use of balloons in the military occurred during the American Civil War with the Union Army Balloon Corps established and organized by Prof. Thaddeus S. C. Lowe in the summer of 1861. The balloons were inflated with coke gas from municipal services and then walked out to the battlefield, an arduous and inefficient operation as the balloons had to be returned to the city every four days for re-inflation. Eventually hydrogen gas generators, a compact system of tanks and copper plumbing, were constructed which converted the combining of iron filings and sulphuric acid to hydrogen. The generators were easily transported with the uninflated balloons to the field on a standard buckboard. In all, Lowe built seven balloons that were fit for military service.
The first application thought useful for balloons was map-making from aerial vantage points, thus Lowe's first assignment was with the Topographical Engineers. General Irvin McDowell, commander of the Army of the Potomac, realized their value in aerial reconnaissance and had Lowe, who at the time was using his personal balloon the Enterprise, called up to the First Battle of Bull Run. In a later exercise, Lowe was called to act as a Forward Artillery Observer (FAO) from which aerial station he was able to direct artillery fire by a set order of flag signals, from an unseen position, onto a Confederate encampment. FAO is still used today from either ground or aerial positions.
Lowe's first military balloon, the Eagle was ready by October 1, 1861. It was called into service immediately to be towed to Lewinsville, Virginia, without any gas generator which took longer to build. The trip began after inflation in Washington, D.C. and turned into a 12 mile (19 km), 12-hour excursion that was upended by a gale force wind which ripped the aerostat from its netting and sent it sailing to the coast. Balloon activities were suspended until all balloons and gas generators were completed.
With his ability to inflate balloons from remote stations, Lowe, his new balloon the Washington and two gas generators were loaded onto a converted coal barge the George Washington Parke Custis. As he was towed down the Potomac, Lowe was able to ascend and observe the battlefield as it moved inward on the heavily forested peninsula. This would be the military's first claim of an aircraft carrier.
The Union Army Balloon Corps enjoyed more success in the battles of the Peninsula Campaign than the Army of the Potomac it sought to support. The general military attitude toward the use of balloons deteriorated, and by August 1863 the Balloon Corps was disbanded.
The Confederate Army also made use of balloons, but they were gravely hampered by supplies due to the embargoes. They were forced to fashion their balloons from gaily colored silk dress-making material, and their use was limited by the infrequent supply of gas in Richmond, Virginia. By the summer of 1863, all balloon reconnaissance of the Civil War had ceased.
Another site has photos also:
Exerpt: "Both the Union and Confederate armies used balloons for reconnaissance during the American Civil War, marking the first time that balloons were used in the United States for reconnaissance".