In a large skillet, cook onion and bacon over medium heat until bacon is crisp and onion is tender. Stir in sugar, cornstarch, salt, 1/2 teaspoon celery seeds, dry mustard and black pepper; combine well. Stir in water and vinegar. Cook and stir until thickened and bubbly. Gently stir in the potatoes. Cook, stirring gently, for 1 to 2 minutes more or until heated through.