The Onsen is apparently a staple of the tourist industry and Japanese life, at least in Eastern Hokkaido. I am pretty sure that entire towns have been built entirely around the presence of naturally occurring spring water. When staying at a hotel, the quality of the onsen is quite often the pride of the establishment. American hotels have pools, Japanese hotels have onsens. Some of them can be quite extravagant, with over a dozen separate giant baths, indoor and outdoor, cold and hot; others are just a little hot bath.
The nakedness can be a bit awkward for people sometimes. Upon entering one is supposed to find a little open shower stall where you squat in front of a mirror and rinse off before entering the actual bath. At all times people carry a little towel, often used to help clean yourself when showering, but most importantly for covering your dick when your walking around. Most people don't really care to cover anything up, but it comes in handy when you run into someone you haven't seen in a while and an awkward conversation ensues. One might also be happy to have one when the bath lady comes in. I'm not sure what exactly they do, but there invariably a 55-80 year old woman who periodically enters the baths to check around and take care of business. There is a very long list of things that just wouldn't fly in America, this is one of them.