Watermarking can be of two types, visible or invisible.

Visible watermarking - where you emblazon '© John Doe 2008' across the image - has the obvious problem that it spoils the picture. Watermarks like this also are usually quite easy to edit out unless large and intrusive and placed across the most important parts of the photo. They are however a clear and simple warning, and worth thinking about.

Invisible watermarking uses steganographic techniques to invisibly embed a hidden, registered creator's code in the image itself. This technology is offered commercially (and at quite high prices) by Signum and Digimarc, among others. The theory is that their hidden code can survive multiple Photoshop procedures or even printing on a commercial press, so images can always be traced back to the rights owner. In practice there are methods for attempting to corrupt the code, and questions about how robust such watermarking really is. It also degrades image quality to an extent that some find unacceptable.