Mermaid Inn is a cheap motel, used by Newport's wealthy as a rendezvous spot for their illicit affairs, and by the visiting non-wealthy as an inexpensive place to stay.
Beginning in Episode 20 (Season 1), "The Telenovela", the motel was used by Luke Ward (Marissa Cooper's ex-boyfriend) and Julie (Marissa's mother) when they had a brief tryst there (in room # 205). Theresa Diaz (Ryan Atwood-Cohen's ex girlfriend) stayed right next door (in room # 204).
The Mermaid Inn popped up again in Episode 21, "The Goodbye Girl" when Theresa & Ryan ended up sleeping together at the motel. The Inn was seen again in Episode 22, "The L.A.", when Julie was spotted kissing Luke there.
In Season 2, the motel was seen in Episode 20, "The O.C. Confidential", when Julie met her old pornographer friend, Lance Baldwin, there - after Caleb Nichol failed to pay off his blackmail demands.
And the motel showed up once again Season 3 in Episode 5, "The Perfect Storm", when Seth Cohen e Summer Roberts used a fake text message to lure Taylor Townsend into a pretend rendezvous with Jack Hess in room 7 of the Mermaid Inn, and then blackmailed her into telling the truth about the illicit affair she was having with the Dean. Sandy Cohen then used the info to force the Dean into reinstating Ryan at the school.