From the Super Mario Wiki
When Princess Toadstool got washed ashore while surfing on her vacation in Hawaii, she was helped up by Cutter, a surfer dude. Cutter also noticed Toad, whom he assumed was a weird kid wearing a funny sun hat, due to his small size and Mushroom cap.
Because Princess Toadstool needed to relax, she lets Cutter give her the time of her life in Hawaii, and together they surf, swim, windsail, waterski and hanglide. However, Cutter's influence starts to become too great, and Princess Toadstool isn't sure that she even wants to return home.
As Princess Toadstool gets better at surfing, Cutter tells her that she should enter an upcoming surfing contest. At the same time, Toad spots Kooky in the bushes, and informs Princess Toadstool that the Koopas are probably causing trouble back home.
Having to leave on short notice, Princess Toadstool confesses to Cutter that she's the princess of the Mushroom Kingdom, but Cutter can't believe what he's hearing. Before she leaves, Princess Toadstool tells Cutter that she one day hopes to make him feel as welcome in her world as he did in his. Toad also tells Cutter to not tell anyone else about their secret. Cutter agrees, because he wouldn't risk telling anyone about the "Mushroom Kingdom", "princesses" or "drainpipes".