Capitalize "Bay" when:
* It's part of a proper noun:
* San Francisco Bay
* Chesapeake Bay
* Hudson Bay
* It's used as part of a geographical name:
* The Bay Area
* The Bay of Bengal
Don't capitalize "bay" when:
* It's used as a general term:
* "The ship sailed into a sheltered bay."
* "We went swimming in the bay."
* It's not part of a specific geographic location:
* "The house is located on a bay."
In summary: Capitalize "Bay" when it's part of a specific, unique place name. Otherwise, use lowercase.