Fish have a good sense of smell. In fact, they often hunt by smell. In most fish, the organs of smell consist of two pouches, one on either side of the snout, which are lined with nerve tissue that is highly sensitive to odors from substances in the water. A nostril at the front of each pouch allows water to enter the pouch and pass over the tissue, then to leave the pouch through a nostril at the back. Unlike humans, however, there is no connection between the nostrils and the throat. Some fish, like salmon, use their sense of smell when migrating or traveling from one place to another.
To learn more, read Understanding Your Fish's Senses.