During the game, the one part of Hyrule that wasn't submerged in water was an air bubble around the castle and a bit of surrounding land. In the end, that bubble collapsed, flooding the place just like the rest of Hyrule. The King sent Link and Tetra back to the surface to "find a new land", while himself staying behind as the water came down on him (along with Ganon, now turned to stone, and the Master Sword). So it's hard to say if Hyrule was destroyed, if the King drowned (he didn't seem to be dying), or what.