This is essentially a cave (or something similar to a cave) built into or con- nected to the pool, typically with a sitting area. It is common to build waterfalls or weeping walls on the outside of the grotto, and/or a rain wall at the entrance. Youngsters love it when a slide is built in to (on top of or to the side of) the grotto. If you build it large enough, you can actually put your spa inside the grotto, to offer extra privacy, and a more romantic mood.
Grottos can be quite striking and beautiful, but frankly speaking, they can also be rather ugly if done by an amateur. A trained professional will design and build the grotto to fit in with the style of the rest of the pool and the yard. Like most any complicated feature, its smart to take a look at a builders previous work before making a final purchase decision.