What is "watching"? Can I view communities separately from the rest of my friends?
"Watching" is defined as adding a community to your friends list. You can watch a community without being a member, or be a member of a community without watching it. Users who list the community as a friend are shown on the Community Info under "Watched By".
Information about how to add a community to your friends list without joining can be found at http://www.livejournal.com/support/faqbrowse.bml?faqid=61. Adding a community to your friends list will not allow the maintainer(s), the members, or the community account to see protected posts in your own journal (http://www.livejournal.com/support/faqbrowse.bml?faqid=81).
Note that adding a community to your friends list without joining will not allow you to post entries in the community and will only enable you to see public posts in the community. If you would like to post entries (http://www.livejournal.com/support/faqbrowse.bml?faqid=76) and see protected posts, you will need to join. Information on joining communities is available at http://www.livejournal.com/support/faqbrowse.bml?faqid=101.
If you choose to add communities to your friends list but would like to view them separately from the rest of your friends, you can use filters, which are described at http://www.livejournal.com/support/faqbrowse.bml?faqid=102.
I pulled from "What is a community?" and the end of "How do I join a community and read its entries on my friends page?", so those might need to be edited accordingly if this FAQ was added, I'd imagine.
Entire thing is very tentative and everyone's welcome to rip it apart; I'm unfamiliar with writing docs and I don't really care for it all that much, so I don't know how decent it is. The title is iffy, and I'm unsure if FAQ 81 should be linked at all given that I basically repeated its entire contents, though maybe I just shouldn't repeat the entire contents of it and link it instead. *shrugs*
I really think this is needed, though. We get a lot of questions about what watching is and since it's mentioned in a couple of places, those requests are tricky to answer. This also has some info on filtering, which is another common question that's hard to answer. I'd also like to see something about ?show=, which is used in answers occasionally but only exists in lj_nifty. I could understand if that didn't get added, though. But I want it. *bats eyelashes*