Cancelo was linked with a move away from the Etihad Stadium in the summer after a difficult first campaign in the Premier League but the 26-year-old has since established himself as an important part of Guardiola's defence.
"He arrived last season and he was confused in the beginning," Guardiola told a news conference on Tuesday.
"He expected something we cannot offer him but he is a nice guy with a great heart and his physicality is incredible.
"The day after a game he can play again and that is so important for us. The last season he struggled a bit with a new club and now he has more time and helps us to do something we need."
City will look to extend a six-match winning run when they host Brighton on Wednesday.
"Since the game against West Brom, that we dropped two points, after that our performances were good but every game we have to win again," Guardiola added.
"The mood is good and we have to continue [against Brighton] and after the rest and the next one. The schedule in January and February is so busy but it is good to again try what we have to do.
"Brighton are better stats in all the departments except the final third. I am a big fan of Graham Potter. We faced them for the first time with Swansea.
"They have the courage to play. I like a lot how they play and it will be a big test."