Before Discord's curse, merponies used to be good friends with ponies before and during the Chaos War. However, when the Chaos War ended, the ponies' hatred and the Windigo Ice Age chased the merponies off into far waters to avoid the blizzards. They have rarely been seen by the other three ponies ever since, even after they had changed and founded Equestria. Equantica was built by a small tribe under the leadership of two Artificial Alicorn descendants of deceased Alicorns of the Sea, Oceanious and her husband, King Barrier Reef, as they have formed a slight bond with life under the sea, and built the city to live in close comfort with them.
They were the only tribe capable of communicating with sea life the same way Fluttershy does with animals, as they were naturally gifted with that kind of magical ability through their creator, the Alicorn Goddess of the Sea, Princess Maricolous, who wished for the beauty of the sea to be shared with ponies on land, and thus formed the brief connection amongst the merponies and the other three tribes until she was lost during the Chaos Wars. Due to her influence, Equantica has been known to communicate with and welcome sea life of all kind as common citizens. But due to the separation from the other three tribes, merponies were quite shy amongst the other tribes, and have remained this way for eons to come.
However, during Discord's rule, Celestia has brought warning to Oceanious and Barrier Reef to possibly expect Discord, warning them about the lies his brother told him about ponies. Discord eventually did come, and after circumstance got him mad, he cursed the city into disappearing from the seas of Equestria, along with the coral reef it was built in, to another sea. However, he never bothered to pay attention to the location, as he only cast the curse to send them to a random sea. The city went to the deep seas of Destiny Islands, where they fell into quite a turmoil as many of it's citizens were distraught at what had just occurred.
They would remain in this new sea for a few thousand years, as even the Trident of Benevolence was not only stolen from them by Taiklar Blackheart, but the Purple Sea Dragon that guarded the entire city following it's relocation was murdered by Dead Sea, a sociopathic councilor for Equantica who wished to return to Equestria his way. He framed his friend, Narwhus, for the murder and got him banished, and he began making major changes as a result of the pirate attack, such as limiting interaction with land creatures. But later on, Dead Sea made the situation worse by creating Geogra, who moved onto becoming a sea witch that swore to conquer Equantica, and make it hard on them by turning any land allies against them. This especially didn't help as, without the Trident of Benevolence, they were placed under a curse that made it difficult for them to trust land creatures like humans.
But Princess Marenia was having mixed feelings about land creatures like humans, as a fascination with their paraphernalia lead to her discovering a handsome non-Equestrian prince, Prince Derek, and instantly falling in love. However, this was discovered by Dead Sea, and considering this a violation of his law of forbidden contact with land creatures, he punished her by taking away not only her Alicornhood, but also her immunity to the curse left by the Trident's absence. This left her as distrustful to land creatures as the rest, but the strongest qualities such as her fascination with their props, and especially Prince Derek, still remained, and though this makes her sound like a hypocrite, it was only caused by Dead Sea as a punishment.
These merponies remained this way for eons, as those that were immune to the curse got all available land assistance, as they believe there is a prophecy where a savior would come in through circumstance and a love for the sea as strong as a merpony would come and save them, get the Trident back, and lift Discord's curse for good. Though this would later be Fluttershy of all ponies, she only gained a fascination of the sea because of circumstance, which seemed to be a perfect description for the prophecy, and with help of her kindness and her friends, the prophecy came true, Geogra was destroyed, Marenia and Derek got together, Dead Sea's crimes were discovered and he was left to start again by being regressed to a baby and be raised better than his original abusive parents, Discord's curse was lifted, especially with help from the reformed Discord himself by Fluttershy, a quality which surprised the merponies more, and Fluttershy was not only heralded and celebrated as a savior, but she and her friends gained permanent merpony auras that, while not making them merponies completely, allow them to breath underwater, allowing Fluttershy to visit Equantica at any time. But there was still much more in store for Equantica.
SocietyEquantica is not the only underwater city of Equestria as there are many others including Coltlantis (Friendship is Magic Issue #24), Aquastria (Under the Sparkling Sea Book), and Seaquestria as they all exchange inhabitants with one another even today. The entire kingdom was built in a large coral reef teaming with beautiful undersea life as it's builders wished to connect with the beauty of the sea. To this day, that is still apparent. Even though the reef isn't as big as it used to, it's still vibrant in undersea life. Cities occupy certain areas covers of the sea floor, and contains kelp farms, wildlife sanctuaries, reef parks, table corals that serve as decks for sentient sea life, large rock formations that serve as the base of the towers, large towers made of pearlescent metals, kelp is used as decoration, and various others. They also consider bubbles as a good enough decorative feature as waterfalls.
The coral reefs surrounding the boundaries of Equantica, the Barrier Reef Wall, is a rich location as it's where most life across Equestria seasonally migrate, making it an ideal location. These migratory paths are also taken by merponies and other sentient beings. The city's coral reefs are surrounded by open empty waters where the only landmarks are rocks and sea grass, and sometimes kelp forests.
The city has a council which is basically the Unicorn Council of Equantica, as the city has a limited monarchy where, while Oceanious and King Barrier Reef would have the most control, the council would act as a 'Congress' that supports people and keeps the rulers in fair position in their eyes. The royal ruling family has unlimited command of the royal guard, and the council has 75% control over the judicial branch.
Equantica is not just populated by merponies. The occasional ichthyocentaur (centaur with upper human body, a horse's front body, and a fish tail), kelpie, sea monkeys, sirens, nymphs, and sea dragons. Other sea creatures from the books and comics such as manta hawks (Comics and UTSS), jellyflies (UTSS), and various others are native here. Other pony tribes, without common physical and/or magical support, are unable to survive here not just because of the risk of drowning, as it is over 100ft deep, the pressure of which can have fatal consequences.