Water breathing of some kind is recommended, but not required, Enter the water near the docks and you'll see non-agro Harbor Pinchers. Hang out near them and they will change to agro versions, scaled to your level. Kill four.
You're supposed to meet Priest Ian Turner in Elddar Grove, but there's a medic there instead. Get the salve from her and return to Harkam.
Apply the salve to a wounded Baubbleshire defender on the ground near Harkam. (Right click the NPC to apply the salve.)