A geographic area in which all sources of water, including rain fall, snow melt, streams, rivers, lakes, estuaries, and wetlands, as well as ground water, drain to a common surface water body, usually the sea. No matter where you live, you live in a watershed. Below is a short video explaining the basics of Watersheds 101.
Want more details? Watershed Revolution is a 30-minute film that profiles community members (including Surfrider Foundation's Paul Jenkin) and organizations working to protect and restore a watershed. It highlights the need for open space and floodplain protection, sustainable agriculture, and community awareness of our most precious resource: water.
EPA has a Healthy Watersheds website and Healthy Watersheds Initiative that includes both assessment and management approaches that encourage states, local governments, watershed organizations, and others to take a strategic, systems approach to conserve healthy components of watersheds, and, therefore, avoid additional water quality impairments in the future. Check out their fact sheet The Economic Benefits of Protecting Healthy Watersheds. This fact sheet describes studies that demonstrate protecting healthy watersheds can reduce capital costs for water treatment plants and reduce damages to property and infrastructure due to flooding, thereby avoiding future costs. Additionally, examples in the fact sheet show that protecting healthy watersheds can generate revenue through property value premiums, recreation, and tourism.
Here's an interesting thing to think about - what if watershed boundaries were used to establish state boundaries? A map of the United States would then look quite a bit different.