Up to six Chinese law enforcement agency vessels, roughly analogous to Coast Guard Cutters, have entered the territorial waters of islands administered by Japan, and Japanese Coast Guard Cutters responded. It does not look like the disagreement is going to go away quietly. Anti-Japanese anger is being nurtured in China. Both China and Japan are preparing for a leadership change, and no one wants to look weak.

Illustration: from CIA map
A good summary of events is here. A second source indicates the Chinese have “1,000” fishing vessels en route.
“And, whether we like it or not, Washington is involved.“
The Chinese have taken an additional step and filed a claim on the islands with the UN describing its interpretation of where the baselines are drawn and enacted a national law that,
“prohibits foreign warships and vessels from entering the waters around the Diaoyu Islands without permission from the Chinese government.”
This seems to reflect China’s broader interpretation of the ability of a state to restrict access to its EEZ.
If the situation were not complicated enough, don’t forget there is a third party here, who are also inserting themselves in the mix. Taiwan also claims these islands and have also sent their Coast Guard into the area.
Photos of some of the players here.