The Angelfish is a quest item that is needed for the Angler. It is caught by fishing on a body of water in a high altitude.
Did you know there's magical islands that float up high in the sky? Bet you didn't! They say angels live in the sky, and I believe those angels have fins and gills and swim around! I believe you must catch one for me!
It doesn't have to be caught on a floating islands as said in the quest.