A watermark is a visible mark composited into the video frames themselves. In this context it usually means a compressor's own branding added to the output of its free tier.
Two things make it worse than it sounds.
It is permanent. Because it is burned into the pixels, removing it means cropping the frame or painting over it — both of which mean re-encoding, and therefore another generation of loss on top of the compression you just did. There is no metadata flag to unset.
It costs bitrate. A hard-edged opaque logo over moving footage is expensive to encode: sharp edges against changing background is close to the worst case for a codec's motion prediction. So a watermarked file at a given size has slightly worse picture elsewhere than an unwatermarked one.
Worth checking before you commit a long upload:
- Whether the free tier watermarks at all, and whether the preview shows it.
- Whether the limit is watermark-or-pay, or watermark-plus-other-limits.
- Whether "no watermark" applies to every output format, or only some.
Related things sometimes called watermarks but not the same: metadata tagging (harmless, removable, invisible) and forensic watermarking (deliberately imperceptible, used for leak tracing). Neither has the properties above.