You need to be between Level 60 to 80 (inclusive) to do this competitive party quest, which is also known as the "Dual Raid Party Quest".
In order to enter this PQ, it is necessary for the party to be consisted of exactly 3 members. There are no pre-requisite quests that you need to do in order to participate in this PQ.
The party leader should talk to Norrington to either create your own room or join another party's room.
It's a good idea to complete the Strategy Rooms as quickly as you can, as the fastest team that does so will net a -5% handicap from the Boss' HP.
Sea of Fog: Strategy Room 1
Kill every single Seaman Recruit Ghost in this room. That's all there is to it.
Sea of Fog: Strategy Room 2
Sea of Fog: Strategy Room 3
Defeat First Officer.
Sea of Fog: Strategy Room 4
Be forewarned that 1st Lieutenant Ghost can darken the entire map except for the small area around your character.
Sea of Fog: Strategy Room 5
Attack the red lever, then run straight for the spring and jump on top of it, and you will be brought to the other side of the lake. Once there, defeat the 1st Lieutenant Ghost and Lieutenant Commander Ghost that appear.
If you manage to kill all the monsters first, congratulations! The boss in the next room awaits you with 5% less HP. On the other hand, if the opposing party eliminate all the monsters first, any remaining monsters will disappear and you will be sent to the next stage.
Sea of Fog: Wayward Captain's Cabin
There'll be two HP bars for Team Red and Team Blue, and whoever defeats the boss first wins!
Ghost Ship Captain has a variety of skills and curses that it can inflict on you. The curses include: temporarily disable you from using potions; and casts a skill that damages your character if you don't move.