Well, the Pequod is sailing towards this place called Java.  While on their way, Daggoo spots something and thinks it is Moby Dick.  They lower the boats and pursue the animal.  They find out, however, that it was just a giant squid.  Ishmael says that squid is sperm whale's food, but that sperm whales feed and live out of sight deep beneath the sea.  I think its funny how it was a giant squid instead of a whale.