A watchlist consists of a number of pages which you have selected to keep an eye on.
Clicking Watchlist will bring up a "Special page" listing all action on these "watched" pages. The wiki keeps track of your visits to pages and shows any which have changed since you last visited them in bold type. (The page names are links of course)
How to watch
Firstly: there is a tab in your "Preferences" page which allows you to select using several criteria (go look). Most people add their own creations and edits to the list.
Secondly: you can add any page which you want to keep an eye on by clicking the star icon on its page and you unwatch by clicking the star icon again.