The Flood of Blood is the incident that occurred seven years before the Inheritance Ceremony Arc. This event was headed by the CEDEF and relates to both the Vongola Famiglia and the Simon Famiglia, and was part of the source of conflict that transpired between them.
The official Vongola report states that bullets were fired into houses of bosses who had deep connections with the Vongola Famiglia. The CEDEF investigated the matter, and, while investigating the bullets, discovered a fine art dealer who seemed to be involved. This man turned out to be the future 10th Simon Famiglia boss's father, Makoto Kozato.
No sooner had CEDEF started their investigation on him that 12 CEDEF members were barbarically slaughtered and crammed inside a hotel elevator; the ghastly scene of their blood dripping down from the top floor all the way down into the basement earned this incident the name "Flood of Blood".
Makoto Kozato's gun was found at the scene of the crime and Iemitsu Sawada disappeared. That very night, Makoto Kozato's house was attacked, and Makoto, his wife, and youngest child and daughter, Mami, were killed. Only Makoto's son, Enma, was left alive.
The Ninth questioned Iemitsu about the incident, but the latter denied any involvement with it. Later, the Ninth declared the incident unsolved without investigating it further.
Demon Spade later revealed that he was the one who killed Enma's family, shot bullets into the house of the families with involvement to the Vongola, and slew Iemitsu's subordinates, all to get the heir of the Simon Famiglia, Enma, to despise the Vongola, so that he could test the 10th Boss and his Guardians' power, the latter being eliminated if they were weak.