sed is intended to be used on line-based input. Although it can do what you need.
A better option here is to use the
tr command as follows:
tr '\n' ' ' < input_filename
or remove the newline characters entirely:
tr -d '\n' < input.txt > output.txt
or if you have the GNU version (with its long options)
tr --delete '\n' < input.txt > output.txt