Well, this movie was inspired from the real incident. This porcelain head of a child’s doll is still lying 12,000 feet under the surface of the Atlantic Ocean next to the wreckage of the luxury liner Titanic.

It was found by Robert Ballard, an undersea explorer. He took photo of that doll head, but didn't pick it up. This might have inspired Cameron to incorporate this doll in his movie Titanic.

From 42 Historical Objects, No. 35: the Titanic doll’s head

Undersea explorer Robert Ballard spotted and photographed the doll’s head during a dive on the wreck in the submarine Alvin in July 1986. This is the only known photograph of the artifact. Ballard didn’t pick it up or record its position, so no one is sure exactly where it is.

Although director James Cameron incorporated the doll’s head into his 1997 movie Titanic, which did include shots actually filmed on or around the wreck, the particular shot in the movie was recreated with a modern prop.

Instant unsettling feeling creation 101

If you'd like to make a viewer feel like something very bad happened, show something that appears empty or abandoned and make the viewer think of kids - often with a certain (and very overused) giggling sound effect. Toys are very effective too - particularly these dolls because they have a habit of being unsettling on their own anyway.

Yikes.

There's actually a name for this too - pediophobia - a fear of dolls. It exists because they resemble people, but aren't quite triggering all the signals that say "Yes - I'm absolutely looking at a person". This confused "So if it's not a human, what am I actually looking at?" response is called the uncanny valley.

What makes the combination unsettling?

You're getting signals of abandonment and of vulnerable people (a child). They combine to create the concept that a vulnerable person was abandoned.

Something very bad must've happened to cause that

It's the same eerie feeling that shows up in empty or decaying schools/ hospitals/ playgrounds etc.

As a side note, if you've never noticed that sound effect before, you'll notice it everywhere now. Sorry about that.

To satisfy my curiosity, I checked the commentary from the Special Edition. This is what Cameron has to say during those scenes:

This is our best guess at what we thought it would look like inside there and it turned out to be pretty darn accurate. When we went back in 2001, we got images very much like this.

The boot and the eyeglasses are things that were actually found by other expeditions in the debris field. We simulated them here. These are simulated shots. Robert Ballard, who found the wreck, actually saw a porcelain doll set very much like that in the debris field.

A little while before that, during the intro, he describes the creation of the intro thus:

So the main title was conceived very, very late in the day, really almost towards the end of editing. I was looking for something and we hadn't found it yet: a way to set a tone for the film. And I sort of had a panic attack; the pads we were trialling now weren't really working and so I kinda stayed up all night. One bottle of tequila and 20 hours later, I sort of cobbled together this opening. I took the most upbeat and happy scenes in the film and stepped them out to make them look like archival footage. And then put the saddest music cue that James Horner had composed with those images, so you get this interesting cognitive dissonance and this seemed to be what the film needed to set it on the right path.

^{_{These are manually transcribed; any errors are mine.}}