Mud also occurs naturally in deep caverns.
Note: Upon reclaiming a fortress, every single bit of mud will disappear.
Mud can be removed by constructing something over the mud, then deconstructing it, or by smoothing/engraving stone. Mud on soil is removed easily by constructing a dirt road.
One common way of creating mud is to flood a good sized area from a lake, thus making mud. Another way is to use a pit/pond from the activity zone menu and have a dwarf throw water over a channeled area into a dug-out area below.
While water leaves "a dusting of mud", the floors of underground pools in caverns are covered in "a pile of mud" which causes water drawn from them to be "laced with mud".
[MATERIAL:MUD] - reconstructed from data extracted from memory [STATE_COLOR:ALL:BROWN] [STATE_NAME_ADJ:ALL_SOLID:mud] [STATE_NAME_ADJ:SOLID_POWDER:dirt] [STATE_NAME_ADJ:SOLID_PRESSED:pressed dirt] [BASIC_COLOR:6:0] [BUILD_COLOR:6:0:0] [TILE_COLOR:7:7:1] [SPEC_HEAT:800] [SOLID_DENSITY:1200]