Is this DS1603LV1.0 sensor bad? Or am I bad?

I don't understand this sensor. In the graphics it looks like it is a water or no water sensor, kind of like a float switch. But it has a serial output and suggests it reports in mm.

Have you tried it with a flat sided container? I would suggest if it is not glued to the container you at least wet the interface and have a small a gap as possible.