What is a watch-only wallet?
A wallet that holds addresses or an xpub but no keys, so it can track balances and payments without being able to spend.
People keep a watch-only copy of a cold-storage wallet on a phone or laptop: it sees every payment that arrives, while the keys stay offline. An xpub can feed it the wallet's addresses.
It can receive — anyone can pay an address — but it can never sign. If a watch-only wallet is hacked, the thief sees your history but cannot take the coins.