Grenades were indeed used by pirates in the Golden Age of Piracy. They were called powder flasks and were commonly made from ceramics, although they could also be made of glass, wood, or iron. They were filled with gunpowder, often along with small metal objects that would become shrapnel, and ignited with a fuse.
I think in the game they should be able to be picked up and carried in your inventory, like cannonballs, but only one at a time. They could be stored in a barrel on the ship. When equipped, pressing the trigger once would light the flask. This would take a moment. Once lit, pressing the trigger a second time would throw it. This would allow you to let the fuse burn down a little, so your intended victim would have less time to pick it up and either toss it back or diffuse it. Doing so would, of course, by risky, since it might blow up in your hand. There would be a random factor to the fuse time to keep things interesting. If you changed your mind before throwing, the second trigger (left on controller, right on mouse) would extinguish the fuse, resetting the grenade.
The damage of a powder flask would, naturally, scale down with distance from the blast. A point-blank blast (explodes at your feet, or holding it) would be fatal. This would probably be rather rare. More often, you'd probably get caught in the blast for anywhere from 20% - 80% health. It shouldn't be a juggernaut of destruction, but more of a utility for softening up groups of foes.
I don't think it should damage ships at all. It takes much more force to knock a hole in the hull of a ship.
I'd enjoy seeing something like this implemented.
