This is the penultimate Boss, you trigger it by setting sail to the Water Temple.
Be warned, once you set sail you CANNOT come back anywhere, as it sets in motion the end-game sequence - so finish any Quests you want to and stock up on Provisions & Ammo.
The Kraken will smash the 2 sides of your ship, and you are auto-equipped with the Spear Artifcact. The fight itself is very simple, the Kraken will surface and either launch it's tentacles at you, these do a fair bit of damage so avoid or replenish health if hit, or it will surface with it's mouth open....
This is the only way to damage it - you need to throw 4 spears into it's mouth, it will then rise up again - land a 5th spear to kill it, but if you miss you will have to repeat the whole process again.
I saved my game after the 4th hit - suggest you do the same!
Defeating the Kraken triggers a cut-scene with Mara, and you earn 1000 Glory for defeating it.