Minecraft wiki entry for Time-saving_tips, associated text: Because sugar cane can only be placed on dirt, sand or grass, you will sometimes need to place some of these blocks first.
It's unlikely that you will be able to completely clear a volume of water using only sugarcane. There will usually be a few spots where sugarcane cannot be placed, and in these places the water will need to be displaced in the usual way or collected using a bucket.
This method only works on sloped areas. You can't fill a completely flat area with sugarcane because it needs a water block one meter below its own level before it can be placed.