Place diced potatoes in a medium saucepan. Add enough cold water to cover potatoes by 1 inch. Bring to a boil over high heat, then reduce to medium-low. Simmer until potatoes are fork-tender but not mushy, about 10-15 minutes.

While potatoes cook, cut bacon into small pieces and cook in a large skillet over medium heat until crispy, about 8-10 minutes.

Remove bacon with a slotted spoon and set aside, leaving the bacon fat in the pan.

Add diced onion to the bacon drippings and cook until translucent and slightly caramelized, about 4-5 minutes.

Whisk in vinegar, water, sugar, salt, and pepper. Bring mixture to a simmer, stirring occasionally until sugar is completely dissolved, about 2 minutes.

Drain the cooked potatoes and add them to the skillet with the dressing. Gently fold to coat all potatoes, being careful not to break them.

Add the crispy bacon bits back to the skillet and stir carefully to combine.

If using mustard, fold it in now for an extra layer of flavor.

Transfer to a serving bowl and garnish with fresh parsley.

Serve warm for the most authentic experience, though it can also be enjoyed at room temperature.