Sanctify will turn hell terrain to normal terrain, in a 1-tile radius. In addition, any graveyard or city ruin in the same tile will be removed, and the AC lowered as a result.
Building a city on a tile does not effect the terrain of the tile. Razing a city and then casting Sanctify on the ruins won't effect the terrain either (except for hell terrain, as mentioned above).
Flood plains are a feature, not a terrain. Building a city on a feature destroys it. Razing a city and then casting Sanctify on the ruins will not restore any feature that existed on the tile before the city was built.
City ruins can be also be removed by pillaging them. This does not yield any gold, but does deny anyone the opportunity to use it to lower the AC, which could be important in a MP game when you are trying to drive the AC up. It doesn't matter in single player since (at least in my experience) the AI doesn't Sanctify ruins.