The purpose of watermarking your online photography is to protect you from having your images reproduced without your permission.
If you are a professional photographer, including a watermark on your images not only helps to protect your images from being downloaded without your permission, but it can serve as an advertisement to promote your business.
Done poorly, some people claim that a watermark can actually prevent people from purchasing your work, or viewing your work at all.
Done well, a watermark can protect your work, while promoting you as an artist.
BigStockPhoto.com and IStockPhoto.com are two examples of sites that use thumbnails that do not have watermarks on them to essentially ‘sell’ the photo or image, but they watermark their downloadable comps. Once you purchase the image, you get a beautiful high resolution version of that image to use within their ‘terms of use policy’.
Here’s an article that has some great tips for best practice when watermarking your images.
To learn more about copyrighting your artwork, read through this pdf published by copyright.gov.
Feel free to weigh in with your opinion on watermarking in addition to any tips and tricks you may have for the easiest or most user friendly watermarking software out there.