In this episode, Fonzie is water-skiing in the ocean and jumps over a shark. The term "jump the shark" has since been coined to define the moment when a television series has passed its peak.
As a teenager, Henry Winkler taught water skiing at a summer camp. His father suggested he tell the producers of Happy Days that he could water ski. When he did, it inspired them to write this episode. Winkler did all of the water skiing stunts himself, except for the big jump, given the safety risk.
On January 31, 1977, eight months before this episode aired, daredevil Evel Knievel was scheduled to jump over a tank of live sharks in Chicago, but was injured during a practice jump when his motorcycle crashed through a guard railing and the stunt was canceled.
The Jump the Shark thing has more layers than just Fonzie jumping a shark and a website, and then a common saying, being named after it, thus summarizing when shows go bad, because this is the first episode that "threatens" the fact that Ron Howard's Richie may be leaving, as in, to become an actor in Hollywood. Most fans agree that the true Jump the Shark moment, that is, when the show got so bad there was simply no turning back, was when Richie left (Ralph too). Ironically, when Richie left for the army, he later returned for a guest spot, and his dream was again for a Hollywood career, but as a screenwriter.
One of the biggest reasons the shark jumping is so infamous isn't only that Fonzie water-ski-leaps over a shark, but that he does it wearing his leather jacket.