With a fishing rod hurr durr LOLOLOLOLOLOLOLOLOLOLOLOLOLOLOLOLOLOLOLOLOLL!!!!!
I guess the first question to ask would be do you have one? If so go to the waters edge and your guild teleporter symbol on the d-pad should change to a hook, press to fish and follow the prompts, however since you feel the need to ask how to fish I will assume you don't have a fishing rod (as the game tells you this when you get a fishing rod) in which case you will want to go to the fisherman's cabin (forget the name) and save the fisherman from wasps. If you need to find where the cabin is just go south from the guild crossroads and in the next area it should be one of the northish exits.
I can't seem to fish up a blue mushroom. There is no ripple. The two guys I'm supposed to talk to at lookout point don't Show up. Is there a trick to get them to appear?
Could be wrong, but I don't think they show up until you start the quest to find the mushrooms. Which begins in Bowerstone South (at some point early on, again I forget the specifics). --- XBL: Gigantopithecus PSN: SugarPussPulled