What is Watermarking?Watermarking is very common in the online digital world. Basically it's overlaying a small image on your finished product photo to either thwart piracy or build brand awareness. See photo below as an example. The watermark is my shop name and web address is the corner.
How Do I Watermark?.I recommend that you use Picasa and Picnik for all your photo editing needs. It's free and easy. Picasa's watermark does not get in the way the photo. It is small and on the lower right hand side of the photo. Here is the link that explains how to watermark Picasa pictures.
Here is a tutorial about how to use picasa to edit your photos.
Why should I watermark my images?
Etsy is photo driven and images are sometimes the first and only things people see. By adding watermarks to your images, you're putting the name of your shop front and center on Etsy search, your shop pages, and any featured stories on and off Etsy. And the more times people see your name, the more likely they are to remember it.
2. Google ImagesFor Etsy, your listing title becomes the keywords associated with your product images. This means that when someone does an image search on Google for "wire wrapped rings", your product images under this title have a good chance of being served. However, the images on Google don't link to your shop but the hosted versions of your image on Etsy. So, your images are basically giving Etsy more traffic. Leverage your images' visibility to your advantage and corral people back to your shop by watermarking your images.
3. PiratingWe all know it happens--people scraping or reusing your photos. But with watermarked images, at least you get some brand exposure out of the deal. Of course people can do editing magic and remove your watermark, but by definition scrapers are lazy and will most likely leave it, giving you additional exposure and making scraping work to your advantage.
4. CredibilityJust like a magazine ad with a designer's logo, your images are your "ads." Make them look finished and you as a designer more credible with watermarks.
5. Finished Product/Overall Shopper ExperienceLastly, give your product images a finished "edited" quality. Make them look intentional and fine tuned with a watermark. Watermarks will not fix bad photography but can augment beautiful photos with a well placed logo.