When two power-driven vessels are in sight of one another and the possibility of collision exists, one vessel is designated by the rules as the stand-on vessel and the other is designated as the give-way vessel. The stand-on vessel should maintain its course and speed. The give-way vessel must take early and substantial action to avoid collision.
If it becomes apparent that the actions taken (or not taken) by the give-way vessel are dangerous or insufficient, the stand-on vessel must act to avoid collision.
So, how do you know a risk of collision exists? An example: your boat and another boat are on a course with a constant bearing but a decreasing range. You are both heading to the same point at the same speed. The risk of collision exists if neither of you alter course and/or speed.
To see this in action watch the following video. After watching, let me know, in the comments section, who should have been the stand-on vessel and who should have been the give-way vessel. Also, what rules of the road were violated?