What kind of wall is this? If it is drywall, you should use joint compound. If it is a small hole under a dime size, place some wadded up fiberglass mesh tape so it fills the hole and sits under the surface. Then push mud on. Use several coats until level. Sand if needed and finish. If it is a bigger hole, go to
Drywall Repair a Hole in Drywall - Instructions for instructions as you will need to put in some sort of backing to fasten a patch piece onto. You can usually get a small piece of waste drywall at a home store or lumber yard for free or just a few dollars to use as a patch.
The water putty will sand, but not very easily.