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Okay then you do not have something set correctly in watermarking.
You can choose one of two types of watermarking permanent or on the fly
You are trying to use permanent so lets explain that. In watermark options in admin you turn it on where you want to stamp the image and you put the full path to the watermark file in there. Note if your using imagemagick it has to be a gif watermark and gd2 you use a png watermark. Now once that is done you go to edit categories and select which usergroups get their images stamped with a watermark.
Once you do that when a member of the usergroups who you elect to get images watermarked in the cats you select the images will be marked
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