IMO, the best feature of watermarking is not that it will make distribution impossible, but that it will have a psychological impact on the customers. It isn't the possible penalties that generally stop someone from doing something, its the chances of getting caught. With a watermarked PDF, there is a 100% chance you will be caught, if the publisher chooses to look on the P2P networks. Just imagine the response of a typical gamer, if say, for example they redistribute a Malhavoc watermarked PDF, and they get a letter at their house from Monte Cook, telling them to stop distributing or there will be have to be further steps taken!
As I understand it, there are many different kinds of watermarks, depending on the technology used. The simplest is to print the customer's name and a serial number on the page. This information can also be encrypted, or placed under the text in the same color as the background material, or other variations. As I've said, this technology is in wide use in the ebook industry. It is far better business sense, as it doesn't interfere with the customer using the product. The biggest problem with DRM schemes is that the free illegal copy is a superior product to the protected legitimate copy.