From the Super Mario Wiki
A Watermelon Block is a large Watermelon shaped like a cube, and is one of many kinds of Blocks found throughout Super Mario Sunshine, along with Brick Blocks and Sand Cubes. They are green with dark stripes on the outside and red on the inside; they likely derive their appearance from Japanese watermelons, some of which are grown cubed.
Mario can only destroy these blocks by Ground Pounding them, making them the 'opposite' of Brick Blocks, which can only be destroyed by jumping underneath them. They make a splashing noise when destroyed, and sometimes drop a single Coin.