Short answers, pulled from the story.
Freshwater economics, centered at universities near the Great Lakes, emphasized internal model consistency and rational expectations, and was skeptical of discretionary government stabilization policy. Saltwater economics, based at coastal universities, was more tolerant of models incorporating irrational behavior and argued that governments should actively manage aggregate demand to smooth business cycles.
Robert E. Hall introduced the terms in 1976 to contrast two groups of macroeconomists. Freshwater referred to economists at universities near the Great Lakes, such as the University of Chicago and the University of Minnesota, while saltwater referred to those at coastal institutions like Harvard, MIT, and Yale.
The freshwater school was centered at the University of Chicago, Carnegie Mellon University, Cornell University, Northwestern University, the University of Minnesota, the University of Wisconsin-Madison, and the University of Rochester.
Freshwater economists generally found it difficult to identify mechanisms by which discretionary changes in public spending could effectively stabilize business cycles. They argued that structural reforms targeting specific market failures would be more effective, and emphasized the government budget constraint as an unavoidable link between deficits, debt, and inflation.
By 2006, Greg Mankiw wrote that the saltwater-freshwater dichotomy no longer held true in many respects. A younger generation of macroeconomists had developed a new synthesis that merged strengths from both approaches, comparable to the neoclassical-Keynesian synthesis of an earlier era.
Rational expectations, or internal model consistency, was a key point of division. Freshwater economists generally required that agents in a model behave in ways logically consistent with the model's world. Saltwater economists were more tolerant of models incorporating bounded rationality, finding irrational behavior both interesting and important to explain.