Like the name says, this level is mainly a harbor.
Surfshine Harbor is located north of Decalburg. It is also directly south of World 4, World 5, and World 6.
Mario heads into Surfshine Harbor to find a boat to process into new worlds. He finds one and uses the Scissors thing sticker to release it but a giant Cheep-Cheep blocks Mario's way. Mario defeats it and uses the boat to sail on onto World 4. Bowser Jr. can also be fought in the ocean near Surfshine Harbor. Mario defeats him easily and moves on.
There is a HP-Up Heart in one of the warehouses in Surfshine Harbor. Mario must work his way in and out of other warehouses to reach it.