It's so overstated that he can't defend, he has strengths and weaknesses just like all defenders.
Walker for example has incredible recovery pace but he also occasionally commits stupid fouls in the box, makes hospital passes and is quite often the one who plays everyone onside due to a lapse in concentration.
Defensively, he could improve positionally but he's excellent at making interceptions that frequently start attacks. If you want to see what someone who can't defend really looks like watch Trent Alexander-Arnold.
Cancelo has an incredibly high level of technically ability which allows us to play out of the press with ease and he has the dribbling ability to drive us forward and take us from a defensive position on the pitch to an attacking position.
He also has the versatility to play as a traditional or inverted full-back which means we can deploy him essentially as a winger or creative midfielder, both of which he excels at. The guy is literally made to play for Guardiola.