Mud Block

Mud Blocks are a very common block type which makes up the majority of the Jungle, Underground Jungle, and Mushroom biome. Mud Blocks may be covered by Jungle or Mushroom grass on any side, which can only grow and spread on mud, and can be planted with Jungle Grass Seeds and Mushroom Grass Seeds, respectively.

Crafting

Result	Ingredients	Crafting station
Mud Block	Dirt Block	Water or Sink
only: Mud Block	Mud Wall4	Work Bench

Result	Ingredients	Crafting station
Mudstone Brick	Stone Block Mud Block	Furnace
only: Mud Wall 4	Mud Block	Work Bench and Ecto Mist

In Hardmode, the evil biomes are capable of converting nearby Mud Blocks to Dirt Blocks, and Chlorophyte Ore is capable of doing the reverse. While the evil biomes can also convert Mud Blocks covered by Jungle grass into a Dirt Block with the respective evil grass type, Mud Blocks with Mushroom grass can never be converted.
Thrown Water and the Clentaminator similarly convert Mud Blocks covered with grass. Regular Mud Blocks without grass will not be converted by these items, unless there is a grass block of the target biome (e.g. a Crimson grass block when using Blood Water/Red Solution) directly adjacent to it.^[1]

↑ Information taken from the PC 1.3.5.3 source code, function Convert() in Terraria.WorldGen.cs There may be inaccuracies, as the current PC version is 1.4.4.9.

Desktop 1.1: Added the ability to craft Mud Blocks out of Dirt Blocks while standing near Water.

Desktop 1.0.6: Removed chance to fall when struck (reverting the earlier change).

Desktop 1.0.4: Now "blends" graphically with Dirt Blocks, rather than with Stone Blocks.