It helps if you understand HOW the water system in PZ works, because I think many people misunderstand it. There is no water simulation involved, water doesn't flow or seek a level. Instead the game simply spawns in a 3D cube of water material with its top at the point you indicate. Now if you consider the "line" as a plane that is the top of that cube, if at any point that plane would be either sticking out of terrain or sticking out of anything that can't contain water, it won't let you place the water. It would be a heck of a lot better if the game gave water feedback by putting the line around the entire area of that plane, IE outline the ENTIRE top of the water level because then you would be able to more clearly see where it doesn't work, but they don't do that so you kind of have to do the extrapolation yourself.