The Naga Courtyard is the battleground of a Naga. It is made of Mossy Stone Brick and Nagastone, a special type of block with a snake pattern embossed upon it. It is approximately 80x80 in size and clears out any area of forest that it spawns in. The picture above shows a Naga Courtyard mostly covered by a Dark Forest.
The Naga will destroy blocks, but will typically not leave the Naga Courtyard or destroy it in pursuit of the player. Nagastone can only be found in the walls of this courtyard, making it a rare block. Also found in the walls of the courtyard are Mossy Stone Bricks, another otherwise unobtainable block.
The Naga is the first boss in the progression system, so neither he nor his courtyard have any prerequisites or protections.
Killing the naga and picking up one of his scales will unlock the Lich Tower.