If something is sunken, it's caved in, inwardly curved, or under water. If a pirate talks about sunken treasure, he probably means that the treasure chest in a ship that's at the bottom of the ocean.
If a realtor is describing a house's sunken living room, she's talking about a room that sits lower than surrounding rooms do. A sunken garden is situated lower and deeper than the rest of your yard. Sunken eyes can be caused by age, exhaustion, or dehydration. The adjective sunken is formed from the past participle of the verb sink, "go under."