The undercellar is a public underground place of rest underneath Baldur's Gate that can be entered through the sewers or the Blushing Mermaid. If you enter through the Blushing Mermaid, a guard will talk to you and demand money to walk through the undercellar. He will let you pass whether you pay or not.
In Baldur's Gate Chapter 5, Quenash will be in one of the undercellar's rooms and is involved in the Searching for Balduran's Helmet side quest. She will give the player a clue to where the helmet is which points to the Helm and Cloak inn in Northwest Baldur's Gate.
In Baldur's Gate Chapter 7, Slythe and Krystin will be in the center of the undercellar. The player must kill them both and then pick up the invitations they hold. This will allow passage into the Ducal Palace.