No, The Innocence Mission is not a Canadian group. They actually hale from Lancaster, Pennsylvania. (I always thought that they were Canadian myself.)
In an attempt to answer what the lyrics mean, I've selected the following quote, which really says it much better than I could. (However, let me just say that I feel a sense of joy whenever I hear the song. Probably because I connect it so closely with "the lake" and perhaps because the imagery is so easily identifiable with me. I've walked in that circle of flashlight and I also like to think that, though I am shy, I can be known.)
...'Lakes of Canada' creates an environment both terrifying and familiar using sensory language: incandescent bulbs and rowboats are made palpable by careful rhythms, unobtrusive rhyme schemes, and specificity of language. What is so remarkable about Karen Peris' lyrics are the economy of words, concrete nouns-fish, flashlight, laughing man-which come to life with melodies that dance around the scale like sea creatures. Panic and joy, a terrible sense of awe, the dark indentations of memory all come together at once, accompanied by the joyful strum of an acoustic guitar. This is a song in which everyday objects begin to have tremendous meaning." Sufjan Stevens
Now I'll wish my own countrymen a very joyous 4th of July!