The whole heater does not need to be under water. There are basically three parts to any heater. One is the element which actually makes the heat. The next is the sensor and hardware that makes the element warm and that controls when it turns on and off. The last part is the temperature control. Only the hardware part must remain completely dry. I should all be sealed up. The sensor is in the part that goes under water. This is why a heater out of water will fry itself, it reads the air temp which is not changing, so the heater tries harder and ultimately self destructs.
The line is there for those who want to be able to adjust the temperature setting without having to put their hand in the water. You can set your heater with the knob above the water or you can set it horizontally at almost any depth you want. Do not set it so the heating element part touches the class, substrate decor etc. Remember to turn off the heater during water changes of you place it this way.
I set most of mine 1/4 to 1/3 of the way up from the tank bottom placed horizontally. I do this for a few reasons.
1. During water changes I do not have to unplug the heater to change 50%+ of the water as it is always fully submerged.
2. Placed this way the physics means it helps with circulation. Warmer water around the heater will rise towards the surface.,This will drag in cooler water closer to the heater. The coldest water in a tank is normally closest to the bottom. So you get an up-flow.
3. In display type tanks this can make it easier to hide the heater.
In any tank where I have a heater placed vertically, I try to do this so the bottom of the heater is close to the bottom of the tank/substrate. This way I can leave the heater on during a water changes because I will not have the water get below the top of the part such that it and exposes the heating element. I usually begin refills, using pumped in water, as soon as the the water removal is done.