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What Is A Grotto?
A Grotto is a lit up tree that spawns in your world when you generate it. Searching for these at night is recommended, since it's easier to spot because of it's light. A Grotto contains a Pokeloot that looks like a Master Ball, but it is not a Master Ball. It can contain a Master Ball or rare and valuable items. Sometimes, if you're unlucky, it will contain junk that you do not want.
Can You Spawn A Grotto?
Yes you can, there is a creative-spawned item called the Grotto Spawner, if you right click a block with this Diamond Hoe like item, a Grotto will appear before your eyes!