"Sinking the isles..."
The Sunken Isles is a biome that spawns on world generation. It is a giant cavity in the world filled with water and dangerous enemies. The Sunken Isles does not spread. Because the area is filled with water, normal water enemies can spawn in this biome, including unique enemies.
At the bottom of The Sunken Isles lies a shadow of Polypus. After defeating Polypus for the first time, the shadow will disappear.