Trouble has been brewing in the East and South China Seas for some years now. China has asserted all of these waters are their territory based on their historical records. Nations such as Vietnam, the Philippines, Malaysia, and Japan have asserted similar rights to parts of the same oceanic territory.
China meanwhile has taken action to build bases on reefs and atolls in the region, and has begun to militarize these while bullying fishermen from nearby nations trying to fish in waters they've historically fished. The Philippines asked the Permanent Court of Arbitration in the Hague for an injunction against the Chinese actions, based on the UNCLOS treaty - the United Nations Convention on the Law of the Sea.
The Associated Press reports the five-member panel unanimously found China was in violation of that treaty. China immediately denounced the finding and declared it had no effect. AP notes the court has no enforcement powers. It remains to be seen whether China is willing to be excoriated, in the United Nations as a scofflaw, just how much an "outlaw" they are willing to appear.
Part of what is driving these Chinese actions is an effort by its government to take people's minds off the economic slump China is experiencing. It's the old "whip up chauvinistic patriotism and pride" ploy, dusted off and made new in Asia.
To read what China thinks of this process, see this English-language story done by a Chinese official. Hat tip to Drudge Report for both links.