The underwater area is like it's name implies an under the sea kind of map. Going through some pillar-like structures in the Ghost Garden will take you here.
Going north will take you to the Underwater Temple. Going west (see red arrow in picture) will take you to the Geometry world by touching a orange and black monitor. Going east will take you to the Underwater City (see below). Going south will take you to a larger part of the sea in which Oreko's house can be found and where you can obtain the Diving Helmet effect. You can also reach the Star World from here by going through the reeds that will change the map similar to the Wilderness map in Yume Nikki.
If you go east from the portal to the Ghost Garden, through the two pillars, you go to a small path which leads to the Underwater City. It's an area consisting out of pillars, walls, rocks, and small houses and carpets for the NPC's living here. The only NPC's here are the fish and the machine-like humanoids which look similar to the fisherman on the pier of the Star World. A lot of these randomly walk around the town, stay in their houses or play music while sitting on their carpets.
One of these houses contains a machine-like NPC playing music next to two dolls wearing dresses. Even though they don't count as effects, Sabitsuki can still wear them, but they disappear when she equips an effect.
If you kill the NPC's who are playing music, the BGM will slowly grow softer and disappear. Also, you can trigger an event with killing these. To trigger the event you should either first kill the two NPC's with instruments outside, then go inside the building with the dresses and kill them, or you could first kill the dresses NPC, then kill the other two, but then you need to enter and leave a house to trigger it. If you leave the building, the music will be back, but you can only see a part of the screen, and the NPC's will move really fast and chase you. If you touch one of them, you can hear a scream and you will be teleported into a very small inescapable area similar to Hell with four of these NPC's who will laugh evilly if you interact with them.