Short answers, pulled from the story.
The United Nations Convention on the Law of the Sea defines a bay as a well-marked indentation in the coastline where land penetration is proportional to mouth width. The area impounded by the bay must exceed that of a semicircle drawn across its mouth connecting two points at the entrance.
James Bay serves as an example where one bay nests entirely within another larger body called Hudson Bay. This relationship demonstrates how enclosed bays can exist inside other significant water bodies while maintaining distinct physical geography.
The largest bays developed through plate tectonics during the Paleozoic era when the super-continent Pangaea broke apart along curved fault lines. Continents moved away to leave large indentations such as the Gulf of Guinea and the Gulf of Mexico which formed this way.
Bays provided easy access to marine resources for early human populations allowing fisheries to thrive in these recessed waters. The land surrounding a bay often reduces wind strength and blocks incoming waves from the open ocean making survival easier for those who arrived thousands of years ago.
If a bay meets specific criteria it becomes inland waters under national sovereignty granting rights to the seabed and its minerals to the bordering country. Control over fishing operations falls exclusively within the jurisdiction of that state government while seafarers must still respect rules regarding innocent passage.