The Black Water Dragon is a rare Demon Fish. The name refers to the waters in which it lays its eggs.
It appears near X:346, Y:381 as the target of a Kyrat Fashion Week quest started from Kyra Tea Weigh Station, and must be killed with explosives, of which plenty, along with an M-79 grenade launcher, appear nearby. This quest will also trigger the appearance of a Recurve Bow in the nearby Yalung's Teeth cave; see that article for details.
The hide from this fish used in Crafting and will upgrade the throwables pack from level 3 to 4, increasing the carrying capacity from 9 to 15 items of each type.