Bear Lake is a lake in Elwood City.
The lake features a beach, and is surrounded by mountains. There are usually a lot of people on the beach, and dogs are allowed on the beach; as evidenced in "D.W. All Wet", wherein a dog is seen at the lake. A raft floats in the water of the lake, which is used for jumping.
D.W. was afraid to enter the lake because she thought that there would be octopuses in the water. Arthur and Buster used this fear in the act of teasing her, with a malodorous trick featuring Buster's bathing cap used as an ersatz octopus.
Real life inspiration
"Bear Lake" is a rather common name for a lake. There are several lakes with the name "Bear", as evidenced here.