To get to Ursula's lair the first time you fight her you must have first gotten the Crystal Trident which you get from the Sunken Ship area and you must have placed it in the trident shaped hole in Ariel's Grotto. Once you've done that go back to the Sunken Ship area and Sebastion will remove a boulder on the wall. Behind the boulder is a passageway which leads to 2 rooms- the first room is the Cavern Nook which you can save your game in (a good idea because you're about to fight Ursula) and the other room is Ursula's Lair.