From the Super Mario Wiki
Watermelon Blocks are supposedly super-sized Watermelons shaped like a cube found in Super Mario Sunshine. They are green with dark stripes on the outside with red on the inside and make a splashing noise when destroyed, like an actual Watermelon.
Watermelon Blocks are merely one of many kinds of blocks found throughout Super Mario Sunshine, such as Brick Blocks and Sand Cubes. They can only be destroyed by Ground Pounding on them (as opposed to Brick Blocks, which can only be destroyed by jumping underneath them). After Mario destroys a Watermelon Block, it often drops a single Coin.