1. first make a watermark png (transparent background).
2. name it "watermark.png"
3. upload the png to the folder gfx (yourSite > core > themes > ThemeYouAreUsing > gfx
4. next have a look at this url: http://phpthumb.sourceforge.net/demo/demo/phpThumb.demo.demo.php#x6 and have a look at the code.
5. open up entry_link_thumbs.php & entry.php and adjust the img tag accordingly to the phpThumb demo.
I'd followed the instructions but I'm not sure where and how embed the code in the entry.php and entry_link_thumbs.php
note: I tryed to insert the code sketch that I wrote but the forum didn't let me. I used the raw but nothing, sorry.
And other question. This watermark is just for the thumbnails or is possible to use for the big image also?