Several key attributes define this location.
First of all, it is far from human habitation.
Second, it is on the monster's home ground. Remember that Grendel had intruded into where the men were sleeping. In that attack, a monster intruded into the human realm. In this attack, Beowulf, a human, intrudes into the monster's home realm. So, it is a reversal.
Third, it is at the bottom of a lake. This is both a sign of Beowulf's heroic prowess--who but a great hero could hold his breath this long and still fight--and symbolizes the fact that this is Grendel's mother's court. It is a kind of underworld.
Fourth, it is a dark cave full of monsters and other animals. However, the cave is also the site of other battles and trophies: there is a giant sword on the wall (that Beowulf will soon use).