Watermark, or digital watermark, is an image or a text that is applied to photos uploaded by your site members. You can manage watermarks in section Settings > Uploads > Watermarks (/admin/uploads/watermarks/):

Click Edit button to edit either image watermark:

or text watermark:

By default, watermarks are not applied to the two smallest thumbnails and to the original image.
Tips
1. You can create new thumbnails and assign watermarks to them. Go to System > Uploads > Settings > select image name > click Thumbnail and you will get to the list of available thumb images:

Click Add thumbnail and fill in the fields:

2. Watermarks are not added to videos.