Cook bacon in skillet until crisp. Remove and chop. Add the onion to the bacon fat and cook until tender. Stir in flour, sugar, salt, celery seed, and pepper. Cook over low heat, stirring constantly until mixture is bubbly. Slowly add water and vinegar and heat to boiling stirring constantly.
Remove from heat and combine with drained potatoes and bacon until potatoes are completely coated. Serve as a side dish, enjoy.