Verb followed by an adjective...?
Sentence reads as follows.
'Estaba tan fascinado por sí mismo que un día cayó dentro del lago y murió ahogado.'
It is the last two words that confuse me.
He died. Drowned.
I'm guessing it means: He died drowning.
And that you can't use the gerund as an adjective like in English, so the past participle is used in the same way?
Essentially, yes. The past participle is often - but not always - an adjective as well. Keep in mind that an adjective must agree with the noun it is modifying in terms of gender and number.