Like the sea monster or sea serpent, various types of aquatic "people" share in the terror and mystique of the underwater world. But in addition to the common danger of being killed and devoured, the water-folk often pose a threat to the identity, to the very soul of those who encounter them.
There is a passage in the Bible describing how, at the end of time, the sea will give up its dead; perhaps because this verse seems to imply a different destiny for those lost there, the land under the sea was envisioned as a weird limbo, outside the normal fate of the dead. A fairly recent variant of this theme is Davy Jones' Locker. Creatures who would drag you down to this destiny were to be feared. Mermaids, in the earliest stories about them, would foretell and even raise storms to wreck sailors who ventured over their realm.
Closer to shore and even in inland waters such as rivers, lakes, and wells, the water-folk would be even more personal and humanoid, though always with a strong element of the watery world in their physical make-up, whether frog, turtle, or fish. They would be just as interested as their oceanic brethren in drawing victims underwater, whether to eat, enslave, or even marry them. More sinister than that, they might strike at their very humanity, changing their human body so that it resembles their own, making return to dry land impossible (this trope is used by H. P. Lovecraft in his Deep Ones). But worst of all they could trap the human soul: the Irish merrows kept them in soul cages, and the Russian vodyanoy in porcelain cups.
On a more benign note, it was a medieval notion that everything on land had a fish counterpoint in the sea; thus, sea-lions, sea-horses (and in those days "fish" applied to anything that swam). The imagination worked on anything unfamiliar drawn from the ocean, and various types of wonders were reported and elaborated on, so that monk-fish and bishop-fish were sometimes spoken of as resembling their terrestrial counterparts, and even acting piously until returned to their watery home.
Monsters such as Jenny Greenteeth in England or the kappa in Japan were used as explanations for drownings and also as warnings to avoid dangerous stretches of water. In that sense they can be said to serve a useful purpose. Kappas, if befriended or defeated, can also grant benefits such as bestowing superior medicinal skill.
Even without deadly intent, encounters can still be fatal. Stories abound of mermaids or water nymphs dragging those with whom they are enamored down with them, not understanding that they will drown. In an old Japanese folk tale a fisherman is taken by a turtle to the fabulous realm of the Dragon King. He spends an hour there, and then returns to the surface with a small box that he is warned not to open. He finds that three hundred years have passed; curious and puzzled, he opens the box, only to release his true age. In an instant he crumbles into dust.