From A Wiki of Ice and Fire
Blackwater Bay is an inlet of the Narrow Sea, separated from it by the Gullet, held between the arms of Crackclaw Point to the north and Massey's Hook to the south, with the island of Dragonstone guarding the entrance to the bay. Elements of the Iron Throne fleet patrol the Bay and ensure it is kept free from piracy. Aside from King's Landing and Dragonstone, the largest port on the bay is Duskendale (which serves as a secondary port for King's Landing when the main port is overwhelmed with traffic), whilst the largest island is Driftmark, the seat of House Velaryon.
A Clash of Kings
The Battle of the Blackwater occurred on the mouth of the river where it meets the bay. This battle pitted the forces loyal to Stannis Baratheon against those loyal to Joffrey Baratheon. Tyrion Lannister, the King's Hand at the time, devised a system with a chain boom pulled across where the river widens into the bay. This chain was raised once the majority of Stannis' fleet was up river and wildfire was deployed to ignite many of the ships. The current pulled these burning ships towards the mouth of the river and against the chain, which resulted in the destruction of much of the fleet.