1. Peel and halve the potatoes and cook in boiling water until tender. Drain and slice. Set aside.
2. Cook the bacon until crisp. Drain, reserving 1 tablespoon of bacon fat. Crumble the bacon and set aside.
3. In a large nonstick skillet, combine the 1 tablespoon bacon fat, the vinegar, 1/4 cup water, sugar, salt, and pepper. Place over moderately low heat and stir constantly until the dressing is thickened
4. Add the reserved potatoes and crumbled bacon; stir in the onion. Mix and heat through. Serve hot.