Mud is a surface type that can be found in a garden. You can find it by the side of any pond. Most aquatic plants must be planted in mud, as opposed to being put in water. Bullrush, Watercress, Water Lily, and a number of other plants grow in mud.
In Viva Piñata: Pocket Paradise there is no mud, and instead all aquatic plants grow in the water. This means that the aquatic plants will not need to be watered to grow. Instead of mud, the edge of ponds is marked by a small stone wall.