:3 a little bit of biology answers how fish do it. but i think the best example of mer-people doing it was in a futurama episode where Fry fell in love with a mermaid and when they went to have sex she was like "I'll lay my eggs and leave and you can fertilize them!" or something to that nature.
Basically, some water creatures procreate outside of the body and some do it inside. i'm not sure exactly what the ratio is, but i'm fairly sure that the mammals of the sea do it inside :3